The US Housing Market is already in a massive Bubble. Home prices have never been higher. Home buyers are getting priced out of the market. The Russian Invasion of Ukraine could make matters worse.
Already sky-high rates of inflation are likely to increase further with higher oil and wheat prices. This higher inflation is likely to go along with increased interest and mortgage rates, further deteriorating the ability of homebuyers to afford a house.
There’s two schools of thought in the real estate industry:
1) Inflation is good for the Housing Market and will increase home prices (a view often held by real estate investors).
2) Inflation is bad for the Housing Market and increases the risk of a Housing Crash (a view usually held by homebuyers).
So…what will the higher inflation resulting from Russia’s Invasion of Ukraine do to the US Housing Market?
With Home Prices at all-time highs, and many borrowers/homebuyers dropping out of the market already due to escalating mortgage rates, I believe further inflation is likely to increase the odds of a Housing Crash.
That’s because more inflation likely means even higher interest and mortgage rates. The 30-year Fixed Mortgage Rate is currently 4.2% and could surge even higher in coming months if Jerome Powell and the Federal Reserve continue with their expected monetary tightening.
The next US Housing crash could be the most devastating yet given how high home prices are, the highest level ever adjusted for inflation.
Data on Inflation Adjusted Prices comes from the Case Shiller Home Price Index: http://www.econ.yale.edu/~shiller/data.htm
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