How will the Russia-Ukraine conflict affect the housing sector?

President reflects on rate rises and how the mortgage industry should prepare for all eventualities

How will the Russia-Ukraine conflict affect the housing sector?

The housing sector should expect to see “less aggressive interest rate hikes” in the wake of the Russian invasion of Ukraine, according to Jodi Hall (pictured), president of Nationwide Mortgage Bankers (NMB).

The head of the New York-based independent mortgage lender told MPA that there were indications that there would be a decline in rates in the wake of the ongoing military conflict in eastern Europe.

She said: “People are going to go for the less risky option, which are bonds, which makes the bond market much stronger and helps interest rates for the consumer.”

On Thursday (February 24), the benchmark 30-year mortgage rate averaged 3.89%, down from the previous week when it was 3.92%.

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Although rates have still increased by more than a full percentage point over the past six weeks, this was before the invasion began on February 24.

Earlier this month, it had been expected that the Fed would go ahead with a 50-basis points rate increase in March to tackle soaring inflation, a move Hall now doubted, predicting a more moderate rise instead.

She said: “With the uncertainty, it looks like that’s going to be a quarter percent (increase). So, with the less aggressive increase to try to draw back on inflation, it puts us in a much better place.”

With inflation currently running at a 40-year high of 7.5%, efforts have been focused on reducing its upward trend by hiking rates.

However, the conflict in Ukraine has added a new dimension, with fears that a protracted war, along with economic sanctions on Russia – one of the world’s major gas and oil suppliers - will have a severe impact on businesses and people’s living standards.  

According to Redfin’s chief economist, Taylor Marr, rising gas prices and plummeting stock markets could dampen homebuyer demand, the latter because it could make it harder for potential homebuyers to gather enough cash for a down payment.

However, the upside being that if the upward trend for rates slows down, borrowers’ monthly payments may become more affordable.

Hall admitted the fallout would be difficult to estimate. “I definitely think that predictions are out the window. We found that out since COVID that it’s impossible to make predictions about what’s going on.”

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She expressed regret at the conflict while recognizing that it would also have an impact on the housing sector. “That helps the mortgage industry, of course, so I do think that there’s going to be lower interest rates.

“Some people are going to be fearful, so it might put some people on the bench, which would help the housing shortage, because, when there’s unrest, they’re going to want to meet their immediate needs.

“If you have cash in the bank and you have a family, you’re worried about what gas prices are going to go to, what grocery prices are going to go to. So we may see some bench players that are able to take away from that demand, which would then help level out home prices.”

There is, however, less certainty on whether this will have a knock-on effect on other aspects of the housing sector. Hall highlighted the recent decrease in the cost of lumber, saying that it had “flattened out from pre-pandemic time”, although prices have surged throughout this month and were currently sitting at $1,272 per thousand board feet, marking a 227% uptick since August 2021.

She also noted that more housing permits had been issued since before the fourth quarter last year, which could provide some respite for the embattled construction sector.

“It’s extremely positive that we’re going to be able to relieve some of our inventory issues, which is also good for the homebuyer,” she said.

She appealed for mortgage professionals to “mentally keep them (homebuyers) in the right place” and to educate both them and their referral partners.

She said: “That’s really what our job is. I think that we have an emotional hurdle to overcome with unrest. But at the same time, the US housing market is going to continue to be strong throughout 2022.”

She also downplayed concerns about margin compression, pointing out that mortgage bankers should have prepared for that eventuality by now, while accusing some of having become “fat happy” on refinance volume.

“From the perspective of NMB, it doesn’t concern me,” she said. “I do believe that a lot of mortgage lenders out there were getting fat happy on the refi boom. They weren’t building, they were just consuming as many loans as they possibly could. They weren’t working on building those relationships and becoming the trusted adviser for their clients and referral partners. And those companies are not likely to survive.”

By contrast, Hall argued that NMB was looking for ways to cut costs when the company was going through a boom by using technology to handle volume without having to hire up.