On Wednesday morning, January 8, 2020, President Trump indicated that the conflict with Iran would not escalate into an all-out war after Iran retaliated against two bases in Iraq for the killing of General Qassem, Soleimani. Instead, the President announced immediate sanctions against Iran, and encouraged other major nations to assist in the middle-east. This is an excellent opportunity to explain how global uncertainty benefits the housing market.
In a nutshell, a global catastrophe (such as a major war in 2020) makes people less likely to purchase a home, or stocks, because of the uncertainty that would flow from such a dynamic. Uncertainty results in people making safe bets, rather than major investments with high risk, high reward (like a house). Thus, in an event that results in uncertainty, prudent investors will favor bonds over stocks (two weeks after the Brexit vote in 2016, U.S. mortgage rates dropped by approximately .15%). Since the mortgage rate is tied to the 10-year Treasury bond (there is an inverse correlation), whenever Treasury bonds are doing well, the mortgage rate will fall as well.
When mortgage rates are low, more people will qualify for home loans, and the lifetime cost of those loans is also reduced. Naturally, when houses get cheaper the risk/reward analysis shifts in favor of buying. Given that mortgage rates are currently at near-historic lows, a push lower would serve to bring more buyers into the market; more buyers means higher home prices.
Nobody wants a war, or an international conflict, but it is important to understand how the market would behave in the face of such an event. At the Chernov Team we understand that knowledge is power, and knowledge of how to anticipate the market’s movement is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.
