Mortgage

How Russia invading Ukraine may influence U.S. rates of interest

The turmoil and uncertainty of Russia–Ukraine

On Feb. 24, Russia declared war on Ukraine and invaded the country.

Like any act of war, this will bring the tragedies of death, destruction and a humanitarian crisis in its wake. Very much secondarily, it will impact global financial markets – including U.S. interest rates.

We’ve seen mortgage rates grow significantly this year with the expectation they’d expand further throughout 2022. However, this conflict adds an opposing force to the mix, and could potentially hold rates steady if not push them lower.

What will happen to mortgage rates?

The average 30–year fixed rate mortgage spiked by 37 basis points in the first two full weeks of February, according to Freddie Mac’s weekly survey. That average then regressed from 3.92% to 3.89% following the news of Russia’s invasion.

Interest rates tend to decrease in times of precarious events, much like they did around the first Covid pandemic lockdowns.

The length of the conflict in the Ukraine will determine how much downward pressure gets applied (to rates).

When these things happen, investors usually place more capital into safer assets – like bonds or mortgage–backed securities (MBS). This leads to declining mortgage rates and the length of the conflict in the Ukraine will determine how much downward pressure gets applied.

“When global investors sense increased uncertainty, there is a ‘flight to safety’ in U.S. Treasury bonds, which causes their price to go up, and their yield to go down,” said Odeta Kushi, deputy chief economist at First American.

“Consequently, amidst heightened uncertainty due to the worsening events in Ukraine, there is a possibility that investors flock to U.S. Treasury Bonds, which may result in a temporary, short–term decline in mortgage rates,” she continued.

Will Russia’s invasion change the Fed’s plans?

Before Russia’s invasion, most economic indicators pointed to interest rate growth for the rest of the year.

As a counterbalance to high inflation, the Federal Reserve previously announced it would be adjusting its policies and raising the fed funds rate multiple times in 2022. While not directly tied to interest rates, these actions lead to growth.

How aggressively the Fed ends up hiking its rates could now change. The central bank will likely address its plans to navigate any uncertainty at its upcoming Open Market Committee meeting on Mar. 15–16.

What to do as a borrower

Predicting where mortgage rates will go from here feels even more up in the air and volatile than normal. As they stand, rates are currently low from a historical standpoint.

If you’re in the market to buy a home or refinance, reaching out to a mortgage professional or lender is a great way to help you get started and answer any questions you may have.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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