Late last week, the US along with the larger part of Europe put financial sanctions on Russia to cripple their military and economic position, as well as devalue their currency, as a punishment for their invasion of Ukraine. These sanctions span from halting the sale of Russian vodka in local liquor stores to freezing any transfer of the Russian Ruble to USD – the world reserve currency. The US and Europe are imposing these sanctions as a non-military strong-arm to halt Russia’s economy and skyrocket inflation of the Ruble.
This has immediately placed Russia’s economy in a vulnerable position. The value of the Ruble is down over 30% from the beginning of February and billions of Russian-owned dollars and euros have been frozen across the world.
On a macro-economic level, this is going to result in two things that will send mixed signals to the mortgage market:
- Sanctions, even if they are not on your country, are inflationary in general. That is because anything the US or Europe previously purchased from Russia will have to be found somewhere else on short notice (the most concerning of which is oil). This will push mortgage rates higher.
- Global investments will flee to safety. Our stock market is already showing weakness. However, global instability has the potential to blow YTD losses out of the water. If Russia continues and countries around the globe join in sanctions, many people will pull their money out of stocks and into bonds. (stocks will be jealous) This will drive mortgage rates down.