Nearly two weeks after Russian troops crossed the border into Ukraine, U.S. consumers are getting hit with surging energy prices, on top of already painful inflation.
Gasoline prices in the U.S. rose to $4.06 a gallon on Monday, close to the record high of $4.11 reached during the height of the financial crisis in July of 2008. Politicians have called for boycotts of Russian oil, and some have even called for seizure of American real estate owned by Russian oligarchs.
But it appears the direct affect on the U.S. housing market will likely be marginal. The geopolitical turbulence resulted in a moderate drop in mortgage rates last week, and according to a report from the National Association of Realtors released Monday, any decline in international real estate transactions will have little direct impact on the U.S. housing market.
NAR’s 2021 International Transactions in U.S. Residential Real Estate Report found that between April 2015 and March 2021, foreign buyers accounted for 1.8% existing home sales purchases and Russians made up 0.8% of all foreign homebuyers in the U.S.
The top five state for Russian homebuyers during that time period were Florida (29%), Georgia (16%), New York (13%), California (8%), and Illinois (5%). However, even Florida, which had the largest share of Russian home purchases, from July 2020 to June 2021, properties bought by Russians only account for 0.2% of the total market, according to a report by NAR and Florida Realtors.
Of the Russians who did buy residential properties in the U.S., the majority already lived in the U.S. as visa holders, while 41% continued to live abroad. This is roughly the same share as all U.S. foreign homebuyers.
Just over half (51%) of the transactions were all-cash, but the study found that buyers who obtained mortgage financing were almost certain to reside at the home in question. The median purchase price of Russian buyers was $325,000, just slightly above the median for all foreign buyers, according to NAR. However, the average purchase price among Russian buyers was $652,915, compared to $480,695 among all foreign buyers, which suggests that there were more luxury purchases among the Russian buyers.
While this illustrates that the situation in Russian and Ukraine will have little direct impact on the U.S. housing market, possibly even making it easier for domestic homebuyers due to a decrease in competition from foreign buyers, other factors that have resulted due to the geopolitical tensions, such as rising oil prices, higher inflation, weaker global currencies relative to the U.S. dollar, larger interest rate adjustments in the future and slower global growth, could have a negative impact on the housing market.
From April 2015-March 2021 the top foreign buyers of U.S. residential property were China, Canada, Mexico, India and the United Kingdom. During the same time period buyers from China, the United Kingdom, Germany, and France accounted for nearly 20% of U.S. foreign buyers.
Due to the geopolitical situation and the economic sanctions on Russia, Western European economies are facing a looming energy crisis as two-thirds of Europe’s crude imports and 41% of the EU’s natural gas resources come from Russia. China may also be facing hardships due to higher prices for wheat, corn, and sunflower oil, as it is the second largest country that Ukraine exports to.
On the other side, oil producers like Brazil, Canada, Mexico and Saudi Arabia will not be hit as hard by the geopolitical tensions in Russia and Ukraine and homebuyers from these countries may still look to buy residential property in the U.S.
Something similar could be said for the economies of oil-producing states in the U.S., as oil production is increased to help with global supply. Texas, which produces 43% of U.S. crude oil, as well as the states of North Dakota, New Mexico, Oklahoma, Colorado, Alaska, and Wyoming, all have the potential for growth as energy industry employment grows in these states, increasing the demand for housing and pushing up home prices.
