How Do Real Estate Markets Respond to Global Political Unrest?
Have you considered what binds global real estate markets together? Each and every market operates with certainty in mind.
And, that’s why political unrest influences global real estate markets.
In this blog, we’ll discuss how global real estate markets are responding to political unrest in general and then the impacts of the current Russia-Ukraine tension as well.
The Effects of Political Unrest on Global Real Estate Markets
Political unrest uproots what people are used to and creates a wave of uncertainty — an investor’s greatest fear.
Will the market bloom or will it crash? When people are uncertain of their financial future, they are not as likely to make a move. Shockwaves will occur and prices (of all goods, not just real estate) will be volatile as new events unfold. Again, this is a turn-off that may potentially lead to reduced spending from global real estate markets as a whole.
Keep in mind that low demand doesn’t necessarily make prices low. Prices, especially in areas away from said political unrest, may soar despite increasing uncertainty. That’s just the nature of uncertainty — it’s volatile and hard to predict.
How the Russia-Ukraine War is Impacting the United States Real Estate Market
This year hasn’t been ideal for real estate investors and buyers alike. Will this trend hold up? Unfortunately, yes.
For the United States, the invasion of Ukraine has added more fire to the already existing housing shortage. The supply chain has yet to recover from the COVID-19 pandemic, and will now further be halted by the Russia-Ukraine conflict. Homebuilders simply can not keep up with growing housing demand because of the weakened global supply chain.
Looking at the numbers, the amount of homes listed is at a record-low. Listings are 24% lower than last year, and 50% lower than March 2020.
Going back to the element of uncertainty, the European war is influencing investors to move out of stocks and toward government bonds. Government bonds are generally considered a safer way to hold onto assets. This is relevant because bond rates are closely tied to the interest rates of mortgage lenders. When bond rates rise, so do mortgage interest rates — which leads to overall mortgages being lower.
Leading up to the invasion, mortgage rates had been steadily increasing. When news broke out of the invasion, a mortgage rate dip occurred for the first time in months. Mortgages fell from 3.89% to 3.76% according to data from Freddie Mac.
Many homeowners acted quickly, tightening up the housing market once again.
But, it’s not all bad news. — at least from a rebalancing perspective. Mortgage rates are increasing again. Combined with inflation, there may be a momentary relief from the seller’s market.
Further, certain oil-producing states will face substantial growth as the United States prepares to bolster the global supply. Texas, which produces 43% of the U.S. crude oil, and states such as North Dakota, New Mexico, Oklahoma, Colorado, Alaska, and Wyoming are all important places to watch out for. Real estate prices will increase as there will be greater need for employment in these specific states.
How the Russia-Ukraine War is Impacting the Global Real Estate Markets
Whether through oil, electricity, food, or other resources — the Russia-Ukraine war is contributing to an inflationary environment for many global real estate markets. Across the world, high inflation almost always leads to higher inflation rates.
Regions like China and Europe that depend on their trade relationships with Ukraine and Russia may experience greater price fluctuations and inflation.
For instance, China is the second-largest country that Ukraine exports to. Goods like wheat, corn, and sunflower oil may all see increased prices in China shortly.
For Europe, oil will be a growing problem. Two-thirds of Europe’s crude imports and 41% of the EU’s natural gas come from Russia. With sanctions on Russia, the Western European economies are likely to face a looming energy crisis.
These predicaments may affect the global real estate markets because major players like China and Europe will be hit with greater levels of uncertainty. At the end of the day, nobody knows how long the Russia-Ukraine war will continue or the severity of it. The transaction of global real estate deals will likely slow down as a result.