The Power is Now

Peter Crowley: Possible real estate impacts from Russia/Ukraine war – Sarasota Herald-Tribune

Peter Crowley is the president of Re/Max Alliance Group.

Over the past week, since Russia invaded Ukraine with the largest military operation since World War II, our real estate agents are fielding several calls from buyers and sellers wanting to know how this will impact the local real estate market.

As I have discussed in the past, the fundamentals of our current real estate market are solid, tipping squarely in favor of sellers with the imbalance of available homes for sale versus the strong demand that has carried into the busy spring market for southwest Florida. For the reasons stated below, 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.

While the scale of the conflict in Ukraine is still uncertain, the economic impacts that are already rippling through the global economy may begin to be felt in the real estate sector as well. Most notably, the increased pressure on oil prices will certainly contribute to the inflationary environment that we have been experiencing since the pandemic started. In a normal market, high inflation almost always leads to higher interest rates, which would strain the affordability of housing on a real estate market that has already priced out a certain portion of buyers.

We may be just starting to see that the smaller pool of buyers is leading to a smaller number of transactions – the next few months will be very telling in this regard. This slight pause in buyer demand would be a welcome reprieve to the intensely competitive buying market that we are currently experiencing. One thing to remember, however, is the significant portion (approximately 50% or higher with discretionary buyers) are purchasing with cash, thus insulating them from a rise in interest rates. This high percentage of cash buyers has typically softened the impacts of a rising interest rate environment relative to other parts of the country.

Another economic impact of the war in Ukraine is the increased volatility in the global equities markets, particularly the US markets. This recent volatility can work in both directions relative to the real estate market.

On the one hand, discretional home buyers (i.e. second home, vacation or investment buyers) do not like uncertainty of any kind –particularly in the stock market. These buyers may take a wait and see approach with their prospective purchases, which again removes one layer of demand in the local real estate market.

On the other hand, 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. This would further strain the supply of homes for interested buyers leading to continued increase in prices and affordability concerns.

As you can see, some of the prevailing economic winds created originally from the inflationary pressures of the pandemic, and now exacerbated by the war in Ukraine could provide the impetus for much needed balance in our local real estate market. The longevity and depth of the conflict in Ukraine will dictate the severity of the economic influences that we experience in the Southwest Florida real estate market.

Furthermore, judging by the volume of cars on our roadways and the bustle of our local airports, our area is still attracting new visitors and new residents at a record level which will continue to contribute to a healthy demand for real estate. The next 60-90 days will be very telling as to which of the previously mentioned levers (inflation, interest rates, stock market volatility and new residents) will tug harder on the scale to make a noticeable difference in the level of real estate activity in our local market.

Peter Crowley is president of Re/Max Alliance Group. 



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