How the Ukraine Crisis Could Affect Your Pocketbook

Economic Impact of Ukraine– my 7 year old asked me a lot of questions this week and I found my responses lacking. From an economic perspective Ukraine is a bread basket rich in minerals. Above is a brief list of their major exports and their ranking in terms of global supply. Wheat prices jumped 5% during the week as commodity traders anticipate a supply shortage with a protracted invasion. Additional disruption in the global supply chain will add to already elevated levels of inflation. Both energy and food prices will likely increase

Mortgage Rates – moved sideways this week. The trading pattern mirrored last week’s movement. Mortgage Backed Securities (MBS) face downward pressure with inflation and experience relief during geo-political instability. Rates are up approximately 1.125% from this time last year.

Personal Consumption Expenditures (PCE)

Inflation – the Fed’s preferred measure of inflation (PCE) showed inflation has been increasing steadily over the past 4 months, increasing at a clip of 0.5-0.6%. Year over year the headline figure is up 6.1%. When you strip out the more volatile food and energy you get an annual increase of 5.2%. The Fed cares more about this stripped down ‘core rate’ as the weather and geo-political instability has the largest impact on energy and food prices which are out of the Fed’s control.

Pending Sales – were down 6% during the month of January which is nearly a 10% drop on a year over year scale. Higher interest rates are likely playing a small factor but the larger challenge is lack of inventory – there were only 860,000 homes for sale last month (in the entire country).

Jobs – the number of people filing for unemployment for the first time decreased by 17K to 232K. These number is very strong and similar to pre-covid levels. The labor market remains tight.

Case Shiller Home Price Index

Home Appreciation – the Case Shiller Home price index showed that in December the price of homes increased 0.9% and values are up nearly 19% on a year over year basis. This means that if you purchased a $400,000 home in Dec. 2021 it would be worth over $475,000. The 3 worst performing metro areas: Chicago, Minneapolis, and Washington all saw 11% gains.

Mortgage Applications –purchase applications declined by 10% from the previous week and are down 5.4% year over year. If you compare numbers to 2019, however, volume is much stronger. Cash buyers are also increasing so the reduction in purchase volume is closer to 3%. This shows the demand for housing considering rates are higher and inventory is at a record low. Refinaces are down 15.6% from the previous week and are down 56% year over year. Refinances are now comprising 50% of transactions down from a previous high of just over 2/3rds of all mortgages.

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