War in the Ukraine has caused mortgage rates to drop sharply!  What does it mean and how will it affect real estate?

Hi everybody, Joe Hillner with Your Home Sold Guaranteed Realty, where we will sell your home for just a 1% commission, guaranteed! 

Ok, so every week, I share market data to keep you informed with the local real estate market.  
Here is this week’s Boca Market Watch.

First, Single Family Homes:

65 new listings, pretty good, and ranging in price from $129K to $11.95M.  
27 homes back on the market, while 15 homes listed took a price decrease, and 8 sellers raised their asking price.  And  a little better week with 41 different properties under contract, and 32 going pending.  28 homes were unsuccessful in selling and were taken off the market or the listing expired outright.  And a much better week for sales with 77 homes closed in the past week,  ranging from $275K to $5.7M!

Next up, Condos and Townhomes:

60 new listings, not too bad, and ranging from $100 Grand to $1.9 Million.  
18 units came back on the market, 16 properties with a price decrease, and 12 sellers with an increase.  And another good week with 55 different properties under contract, and 52 going pending,  And just 12 condos or townhomes were unsuccessful in selling and were taken off the market or the listing expired. 90 closed sales this week, almost normal volume, and ranging in price from $100 Grand to $5.1 Million!

Here's what's making news right now.

Mortgage demand stalled last week, as interest rates hit a multiyear high, but that will likely change quickly. Rates are now falling fast due to the Russian invasion of Ukraine.

Mortgage application volume was essentially flat compared with the previous week, according to the Mortgage Bankers Association's  index, and it was down significantly in January. Borrowers had no incentive to refinance, and homebuyers continue to face high prices and a severe lack of listings.

Applications to refinance a home loan were 56% lower than the same week one year ago. Mortgage rates were 92 basis points lower a year ago, which is almost a full point, so there were far fewer borrowers who could benefit from a refinance.

Mortgage applications to purchase a home fell 2% for the week and were 9% lower year over year. Buyers are now seeing prices appreciate at the fastest pace in more than 45 years, up just over 19% from a year ago in January, that's nationally, and 29% locally!

These dynamics will likely now shift, due to a sharp drop in mortgage rates this week. The war in Ukraine has caused investors to rush into the bond market, which resulted in lower yields - when prices go up, rates go down. Investors don't like uncertainty, so they flock to safe, predictable investment vehicles, like bonds. Mortgage rates loosely follow the yield on the U.S. 10-year Treasury bond. The average rate on the 30-year fixed fell 28 basis points in just the past two days, according to Mortgage News Daily.  That's basically a quarter of a point.

The expectation going into this year was that rates would move steadily higher , as the Federal Reserve eases its purchases and holdings of mortgage-backed securities. The Fed has not made any changes to its plan for that so far, so it is possible that the drop in mortgage rates will be brief. Lower mortgage rates will continue to put upward pressure on home prices, especially given the drastic imbalance of record low supply and strong demand.

If anything, this short term drop will only feed the flames of buyer urgency to get a property under contract now and take advantage of the drop in rates.  Just what we need, right, even more feeding frenzy situations.  I have some buyers bidding on houses and the worst situation we ran into just last weekend was a property that received 46 other offers - just insanity!

What we do know is that the Fed has already given guidance that it still expects to steadily increase rates through the year.  What we don't know is what effect the war, and the sanctions being imposed by Western governments, will have on the global economy and the real estate market, if any.

The primary short-term or immediate effect stems from the extensive sanctions levied against Russian banks and oligarchs. New York City and the South Florida area have, for decades, been inundated by Russian buyers at the high-end of real estate. Because of the suddenness and strength with which western countries delivered their financial response, real estate deals in progress could fall apart.

Russians are not able to move their money out of the country because of sanctions; they can’t leave the country because flights are banned from their airspace…if there’s a wealthy Russian that needs to sell right now, what are they going to do with their money? Where are they going to be able to put their money? They’re not going to be able to bring it back, and they probably aren’t going to want to.

Then there are likely supply chain disruptions to deal with.  For example, the price of oil is going up globally, which could impact the building sector from deliveries to the production of building materials.

The cost of oil is embedded in the cost of just about every kind of input that businesses are using, including building materials, or just the actual distribution and transportation of materials and workers.  We'll just have to see how things shake out over the next few weeks and months.