How Will Today’s Foreign Conflicts Impact U.S. Real Estate Values?

How Will Today’s Foreign Conflicts Impact U.S. Real Estate Values?

The wars in Ukraine and Israel could have notable impacts on U.S. real estate through several interconnected factors, including energy markets, inflation, and global investment behavior.

Energy Prices and Inflation:

Both conflicts have the potential to push energy prices higher. The Ukraine war has already caused significant disruptions in global oil and gas supplies, leading to elevated energy costs. Higher energy prices contribute to broader inflation, which can prompt the Federal Reserve to raise interest rates. Higher interest rates increase the cost of mortgages, reducing housing affordability and cooling demand in the real estate market. This scenario could put downward pressure on real estate prices, particularly in interest-sensitive markets.

Supply Chain Disruptions:

Ukraine plays a crucial role in the global supply of construction materials like steel and aluminum. The war has disrupted these supply chains, leading to material shortages and price increases. This has slowed down construction projects and raised building costs, which could limit the supply of new housing. In markets where supply is already tight, this could drive up real estate prices as demand remains strong while supply dwindles.

Investor Behavior:

Geopolitical instability often prompts global investors to seek safe-haven assets like U.S. real estate. Increased foreign investment in U.S. properties, especially in high-demand cities like New York and Miami, could push property values higher in those areas. However, a prolonged global economic downturn resulting from these conflicts could reduce international investment, particularly in luxury and commercial real estate.

Impact on Interest Rates and Government Policy:

Increased defense spending due to these wars could lead to higher national debt in the U.S., putting pressure on interest rates. Higher rates can make borrowing more expensive, further limiting access to real estate financing and slowing price growth. Additionally, volatility in energy markets could increase inflationary pressures, encouraging the Federal Reserve to continue with rate hikes.

Immigration and Housing Demand:

Wars typically result in displacement and migration. An influx of refugees or immigrants from Ukraine and Israel could drive housing demand in the U.S., particularly in areas with large immigrant populations. Increased demand for rentals and homes could lead to upward pressure on housing prices in those regions.

In summary, the wars in Ukraine and Israel may affect U.S. real estate by pushing up inflation, disrupting supply chains, influencing global investment trends, and potentially increasing housing demand due to immigration. The extent of these impacts will depend on how the conflicts evolve and their broader economic effects.

This information is for educational purposes only and does not constitute direct investment advice or a direct offer to buy or sell an investment, and is not to be interpreted as tax or legal advice. The views of this material are those solely of the author and do not necessarily represent the views of affiliates. Statistical data contained in this material was obtained from third-party sources believed to be reliable; however, 1031 Capital Solutions, CIS, CAM, and CIA do not guarantee the accuracy of the information.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). 1031 Capital Solutions is independent of CIS, CAM and CIA.

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https://therealdeal.com/new-york/2022/03/16/russias-war-stalls-us-real-estate-deals/

https://www.nar.realtor/blogs/economists-outlook/the-impact-of-russia-ukraine-tensions-on-the-u-s-housing-market

Ibid. (see previous footnote)

https://www.rand.org/pubs/commentary/2023/03/consequences-of-the-war-in-ukraine-the-economic-fallout.html

https://therealdeal.com/new-york/2022/03/02/watch-breaking-down-the-ukraine-invasions-potential-impact-on-us-real-estate/

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