Ukraine Invasion Could Mean Lower Mortgage Interest Rates Over The Next Several Months
Stocks fell last week as Russian troops launched a full-scale Ukraine invasion. The war could lead to lower mortgage rates in the U.S.
Why? Investors often flee to safer options during military conflicts. They usually flock to U.S. Treasury notes, bonds and mortgage-backed securities. In return, that dynamic tends to put downward pressure on mortgage rates.
Experts point to the ‘Brexit’ vote in 2016 when a declining bond yield led to a decline in mortgage rates.
However, the Federal Reserve was already balancing efforts to slow inflation without cooling the economy too much. Experts also expect the conflict will exacerbate inflation. by the conflict. This is due to the heavy sanctions being place on oil-exporting Russia.
How the Federal Reserve thinks about the conflict in Ukraine may last is unknown. It depends on the likelihood if it expands beyond the borders of Ukraine. Any expansion of the conflict will determine how mortgage rates move in the long term. The Fed will meet again from March 15the through the 16th. They are expected to raise mortgage interest rates from 0 to 0.25%.
Mortgage Bankers Association Economist Joel Kan said he doesn’t see rates going down. He said the trade group expects the Fed to increase rates four times this year regardless of the Ukraine invasion.
Mortgage rates fell slightly to 3.89% this week. They were also down three basis points from the prior week according to Freddie Mac.
The Fed has also tapered its monthly asset purchases in January. They are expected to conclude the tapering off in March.
The conflict in Ukraine may have other impacts on the housing market. Namely, homebuilders.
Stock market declines could temper homebuyer appetite for more expensive or second homes.
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