The consequences of the Ukraine conflict are rippling through the global economy. The housing and real estate market is no exception.
Should homebuyers expect similar shocks to those that have roiled financial markets worldwide?
Russia’s invasion of Ukraine last week immediately sent markets worldwide into a volatile frenzy, which has magnified insecurity and could lead to reduced spending. But it is still unclear whether the conflict in Ukraine will lead to higher home prices for Americans.
The early months of 2022 have not been easy for prospective homebuyers—just like basically all of 2021. A combination of limited inventory and record demand for new homes has led to prices skyrocketing. Some key commodities for new home construction have reached record-high price levels, and experts predict home prices to rise.
A major consequence of the Ukraine crisis has clearly been energy prices, which have been soaring since news of the invasion broke.
Since the invasion began, energy prices have skyrocketed. A week after the conflict started, oil prices have soared to over $110 a barrel, which makes trivial things like driving a car or heating a home much more expensive for everyday consumers. Recently, prices shot past $120, and if the West decouples from Russian energy the way it has from other businesses, that could well shoot higher.
Higher energy prices could make consumers even more apprehensive about making big purchases, in an economy in which consumer sentiment has already fallen to record lows, according to a recent survey by us. The primary driver of pessimistic consumer sentiment in today’s economy has been the high inflation.
Higher gasoline prices translate into higher commuting and transportation costs for consumers. The rise in gas prices comes at a time of rising overall inflation, with families paying more for food, clothing, cars, and health care. For many families, oil prices are adding to the monthly financial burden.
If oil prices remain elevated, higher energy costs and a longer conflict could combine to power their way into the supply side of the housing market as well.
An escalation of the crisis in Europe could lead to even more constrained supply chains, which could eventually lead to higher prices on the housing front.
Over the past few months, builders have been ramping up the pace of new construction, working to meet the strong housing demand of a rising demographic cohort. But while the Russia-Ukraine conflict has been restrained geographically to Eastern Europe, a prolonged conflict and the broader economic sanctions have the potential to negatively impact geopolitical alliances, as well as trade routes, which could have a spillover effect on supply chains.
The situation in Russia and Ukraine is creating significant uncertainty.
But, in the times of uncertainty, real estate is a rare safe haven for investors’ wealth. There is evidence that when there are global issues, investors look toward the real estate market not only for Treasuries, but also toward the purchase of property.