The inflationary trend in the global economy has have an effect on housing affordability. As consumers have less spendable income because of the rise in costs of goods and services, not to mention food and energy prices which has hit record highs. The latest crisis is the war between Russia and Ukraine.
How will this conflict impact U.S mortgage interest rates?
We have seen that during the month of February, banks decided to raise rates amid the Federal Reserve Bank’s announcement to increase interest rates on March. But since the war started a few days ago, home buyers are seeing a temporary relief from rising interest rates as the 30-year fixed-rate mortgage averaged 3.89% for the week ending Feb. 24, down three basis points from the previous week.
In addition, Deputy Chief Economist at First American Odeta Kushi said that “When global investors sense increased uncertainty, there is a ‘flight to safety’ in the U.S. Treasury bonds, which causes their prices to go up, and their yield to go down.” As a result, there is a good chance that uncertainty due to the events in Ukraine will push investors to flock to U.S Treasury Bonds, resulting in a short-term decline in mortgage rates.
However, there is a probability that the temporary decline in mortgage rates will be short lived. PNC chief economist Gus Faucher said “An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Federal Reserve to tighten monetary policy aggressively.
It remains what will occur in 2022. Recent mortgage-application data from the Mortgage Bankers Association suggests that home-buying demand has ebbed in the face of rising rates. As housing shortage supply remains at an all time low.
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