25 Jul How the war in Iran is affecting real estate
How the war in Iran is affecting real estate
The Iranian war affects real estate manly through the financial markets by increasing oil prices, adding to inflation, and increasing the 30-year fixed U.S. mortgage rates from about 5.99% to about 6.5%. This increase stops the housing market recovery, gives buyers pause, and increases new construction costs.
Higher Mortgage Rates and less Affordability
- Rate Jumps: Rising oil prices increase general inflation and expectations, the result is higher bond yields and mortgage rates to climb.
- A Market Freeze: The higher monthly payments concern potential homebuyers, we are seeing a drop pending home sales and slowing down new construction.
- The Lock-In Effect: Some existing homeowners are choosing to stay in their homes rather than trade low mortgage rates for a new, expensive loan.
Big impact on Construction and Material Costs
- Supply Chain Disruption: Blockades and geopolitical concerns in the Gulf region affect global supply chains and energy markets.
- Rising Building Expenses: Increased energy and transportation costs make materials like insulation, roofing, windows, and metals more expensive. This increase to passed on to the consumer.
- Builder Pessimism: Homebuilder confidence is dropping as construction costs squeeze profit margins and new home construction orders slow down.
Commercial Real Estate Pressures
- Climbing Interest Yields: Benchmark rates like the 10-year Treasury are moving higher, which increase borrowing costs for commercial property loans.
- Refinancing Risks: Commercial property owners with variable-rate debt have heightened concerns when trying to refinance in a higher-rate environment. These higher costs are again passed down to the consumer and can reduce the investors’ willingness to buy a property.
I hope you find this information helpful.
Feel free to call me with questions at 612-386-8600.
Jeff Anderson
The Anderson Team
RE/MAX Results
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