By KIMBERLEY HAAS
Russia’s invasion of Ukraine and its implications for the global economy have some experts saying the housing market in the United States will be impacted because of growing inflation pressures and supply chain difficulties.
The Fannie Mae Economic and Strategic Research Group now projects full-year 2022 real gross domestic product growth of 2.3%, down from last month’s projection of 2.8%.
They have also increased their 30-year fixed mortgage rate forecast to 3.8% in 2022 and 3.9% in 2023.
Russia invaded Ukraine on February 24. Just before the war began, inflation hit a 40-year high and the Federal Reserve was poised to begin a course of significant money tightening.
According to the ESR Group, the task of enacting a “soft landing” – that is, raising rates to combat inflation without precipitating economic contraction – has been further complicated by the recent geopolitical developments.
Despite the substantial uncertainty, the ESR Group continues to expect the Federal Reserve to raise the federal funds rate five times in 2022 and eight times total through 2023, according to a press release.
“A slowing economy, decades-high inflation, expired fiscal stimulus, tightening monetary policy, and now Russia’s invasion of Ukraine are all weighing on the health of the US economy,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
Duncan said the interruptions to the trade of energy, agriculture, and other commodities are putting upward pressure on inflation and making an already difficult task for the Federal Reserve even more challenging.
Housing is adding to inflation because there is still demand from potential buyers as mortgage rates are predicted to stay around 4%. Refinance activity will drop off, he said.
“We expect home purchase loan volume to hold up reasonably well but refinance activity to fall off considerably over our forecast horizon, perhaps totaling only a third of originations, unless there is a drop in mortgage rates, which we do not expect. Nonetheless, from a historical perspective, mortgage rates around 4 percent for fixed-rate loans is still a consumer-friendly rate for a home purchase,” Duncan said in a statement.
In an article for Fortune, economists Tom LaSalvia and George Ratiu said higher oil and energy prices, along with supply-side troubles, could affect potential home buyers if the war in Ukraine continues.
Despite the uncertainty, LaSalvia said forecasts for a busy spring housing market in the United States remain the same.
“We’re not dramatically changing any of our baseline forecasts for this year, but the distribution of what could happen has widened,” LaSalvia told Tristan Bove. “That’s really where we are right now in this crisis: The level of uncertainty has grown.”
President Joe Biden is heading to Europe this week. He now believes Russian President Vladimir Putin could resort to the use of chemical weapons in Ukraine.
Biden claims Putin’s “back is against the wall” and the Russians are suggesting that Ukraine has biological and chemical weapons in its country.
“That’s a clear sign he’s considering using both of those. He’s already used chemical weapons in the past, and we should be careful of what’s about to come,” Biden said.
Biden said Putin is also asserting that America has biological and chemical weapons in Europe.
The president said there will be severe consequences to pay if such weapons are used by Russia because of a united NATO front.
NATO Tweeted a video describing some of the lies of the Kremlin on Monday, saying “Stop the lies, stop the war.”
The concept of Russia using weapons of mass destruction has made people throughout the world uneasy since the beginning of the invasion.
Editor’s Note: We at The Mortgage Note want to highlight those in the housing industry who are stepping up to help the people of Ukraine as they flee their homeland. If your business is working on relief efforts, please let us know by emailing Kimberley Haas at [email protected].