The current conflict between Russia and Ukraine has caused an increase in gas, oil, and energy prices, which has, in turn, put a financial strain on hundreds and thousands of people. These rising inflation costs are causing many families to make difficult decisions when it comes to buying or selling their homes.
For some people, the desire to purchase a home has decreased due to the uncertainty of the Russia and Ukraine conflict. For others, it has created a sense of urgency to buy now before prices go up again. All of these thought patterns and behaviors have impacted the housing market, which has led to an increase in demand, and a decrease in available inventory.
Tom LaSalvia, who is a senior economist and housing sector specialist at financial services firm Moody’s Analytics, states this:
“Since the invasion began, energy prices have skyrocketed. A week after the conflict started, oil prices have soared to over $110 a barrel, which makes trivial things like driving a car or heating a home much more expensive for everyday consumers. He goes on to say “All of those things—energy prices, inflation, the apprehensive consumers—are going to ultimately affect what households are going to do in terms of housing. Higher gasoline prices translate into higher commuting and transportation costs for American consumers. The rise in gas prices comes at a time of rising overall inflation, with families paying more for food, clothing, cars, and health care. For many families, oil prices are adding to the monthly financial burden and leading to difficult choices.” (Bove, 2022)
When it comes to predicting housing market trends, consider this statement from Lawerence Yun, Chief Economist of the Research group at the National Association of Realtors.
“ Inflation continues to kick higher with an 8.5% consumer price rise in March. Aggressive inflation will force the Federal Reserve to raise interest rates multiple rounds this year and actively pursue quantitative tightening. That is why mortgage rates recently have shot up so high. Higher mortgage rates will inevitably pull home sales down in the coming months and slow home price appreciation. My projection at the moment is for a 10% reduction in home sales this year and a 5% home price gain by the year’s end” (Yun, 2022).
All of that being said, the current status of the U.S housing market is not in a state of complete disaster. In fact, Nitin Chexal, CEO of Palladius Capital Management says this: “The US economy will be the least impacted large open economy due to our domestic energy and food resources. Non-US investors will overweight their allocations to US real estate as a result” ( Benson and Plavajka, 2022). Another positive outcome for the real estate market is that If inflation drives up home prices, your house will be worth more than it was when you first bought it! Peter Crawley, president of Re/Max alliance group stated the following: “This type of large scale geopolitical event could help to push the scale ever so slightly toward some semblance of balance in the real estate market” (Crowley, 2022). He goes on to say that “Significant decreases in the stock market may motivate both buyers and sellers to move funds into real estate to realize a more reliable return on their funds. (Crowley, 2022).
Despite all the craziness going on in today’s world, one thing that remains true is that real estate is a good investment. Real estate is a long-term investment, which means you can keep the property for many years as you wait for it to appreciate in value. At the same time, you can make some extra monthly income if you rent out your property while waiting for the value to rise (Rafter, 2022) !
According to rocketmortage.com, “Adding real estate to your investments boosts your diversification, which can protect you in times of economic turmoil. Say certain stocks are suffering because of an economic downturn. The investment properties in your portfolio might still be increasing in value, protecting you from the losses your other investments are taking” (Rafter, 2022). This article goes on to explain that real estate investments can also offer you protection against inflation. “When the prices of goods and services are rising, home values and rents typically increase, too. Investment properties, then, can provide you with rising monthly income and appreciation to help protect you financially when the costs of everything else is going up, too” ( Rafter, 2022).
While people may be worried about what to do with the housing market being what it is, research and market trends show that real estate was, is, and continues to be a lucrative and profitable investment. Besides diversification and inflation protection, there are many other instances in which real estate investments can be beneficial. For example, when you invest in real estate, there are tax advantages! According to Dan Rafter at Rocketmortage.com, “You can deduct several expenses associated with owning an investment property, including your property taxes, mortgage interest, property management fees, property insurance, the costs of ongoing maintenance, the cost of repairs and the money you pay to market your property to potential renters. If you sell your property for more than you paid for it, the gain you realized won’t be taxed as income. Instead, it will be taxed as capital gains, which typically come with lower tax rates than does income” ( Rafter, 2022).
Even if you are not in the position to invest in rental properties, buying and paying off your home is a great investment in itself. According to Dave Ramsey, “Homeownership is the first step in real estate investing—and a huge step toward having financial peace. In fact, paying off your home is the best way to invest in real estate. Once you do that, as long as you pay taxes and insurance, you won’t ever have to worry about losing your house. You can stay calm regardless of the ups and downs of the real estate market” ( Ramsey, 2022).
No matter what is going on in our world, the real estate market, or the economy, investing in real estate is a great option for those wanting to protect themselves against inflation or diversify their income, among many other benefits! While the conflict between Russia and Ukraine has definitely impacted the U.S housing market, it is still an excellent time to buy or sell, and the team here at BP Realty is ready to help.