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How Russia-Ukraine War Could Affect U.S. Housing, Economy

February 25, 2022

Russian airstrikes battered Ukrainian cities this week, and the conflict is being felt around the globe. Financial markets worldwide likely will feel the impact from the Russian invasion of Ukraine, the largest military operation in Europe since World War II. Economists are warning that the U.S. housing market should brace for some possible changes in consumer behavior.

The luxury real estate market may feel the disruption the most, as financial resources home buyers use to pay for home purchases, such as stocks and cryptocurrency, have been volatile since the conflict began. The global unrest also could give American consumers the jitters and prompt them to cut back on spending and economic activities, The New York Times reports.

But aspiring home buyers in all price ranges may become more hesitant to make large purchases amid stock market uncertainty and fears of how a potential full-blown war in Europe might affect U.S. inflation—which is already at a 40-year high. Escalating inflation is hurting renters, buyers, and homebuilders who are facing rising construction costs, realtor.com® reports. “It’s all bad for the economy and housing. It’s just a matter of how bad,” Mark Zandi, chief economist at Moody’s Analytics, told realtor.com®. “There’s a number of different ways in which Russia’s actions will hurt housing.”

The conflict could put more pressure on rising oil and food prices, which, in turn, could weigh more heavily on consumers’ household budgets. Russia is the second-largest oil producer in the world, and although the U.S. imports little Russian oil, the conflict could roil global energy markets, the Times reports. “If oil prices go up, that raises costs throughout the economy,” says Danielle Hale, realtor.com®’s chief economist. “It means more inflation.”

Higher oil and gas prices likely will affect home heating costs and cause even more global supply-chain disruptions, which are being felt widely in the homebuilding industry. Inflation and supply chain problems likely will prompt even higher construction costs. Prices for construction materials have already climbed 22% annually because of inflation, according to the National Association of Home Builders. Lumber prices have jumped 40% over the past 13 months alone. Higher material costs coupled with higher mortgage rates, which are likely looming in the next few weeks, will hamper housing affordability, economists say. “Higher mortgage rates will slow homebuying demand over the course of 2022, and the Russia-Ukraine crisis will add short-term volatility to the bond market,” says Robert Dietz, the NAHB’s chief economist.