Mortgage rates fall amid geopolitical uncertainty. How the Russia-Ukraine crisis could impact home buyers — and interest rates

And there’s a chance rates will move even higher. As the U.S. and other countries move to impose sanctions on Russia over its invasion of Ukraine, gas prices are likely to surge due to Russia’s position as a major producer of oil and natural gas.

“An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Federal Reserve to tighten monetary policy aggressively, and higher interest rates could become a larger headwind for the U.S. economy,” said PNC chief economist Gus Faucher.

“Even with this week’s decline, mortgage rates have increased more than a full percent over the last six months,” Sam Khater, Freddie Mac’s chief economist, said in the report.

The 15-year fixed-rate mortgage fell one basis point over the past week to an average of 3.14%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.98%, unchanged from the previous week.

The decline in mortgage rates roughly tracks movements in long-term bond yields. The 10-year Treasury note’s yield
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1.968%
has slid in recent days as tensions in Eastern Europe exploded into armed conflict.

“As the world reacts to developments in Ukraine, the uncertainty will likely mean a pause in the recent pace of increases,” said Danielle Hale, chief economist at Realtor.com.

But even with this momentary pause, mortgage rates remain significantly higher than in recent months. According to Hale, only two previous events compare with this recent surge in rates. Following the 2016 presidential election, mortgage rates soared 85 basis points over 10 weeks, and in 2013 during the “taper tantrum” when the Federal Reserve scaled back its stimulus activities interest rates increased by more than 1% over 11 weeks’ time.

“In both cases, home sales momentum slowed in the following year due to the impact on affordability, since rising rates mean higher homeownership costs even if home prices are unchanged,” Hale said, noting the effects were more pronounced for those who had less money to put toward a down payment.

It remains to be seen whether a similar string of events will occur in 2022, though signs point in that direction. Recent mortgage-application data from the Mortgage Bankers Association suggests that home-buying demand has ebbed in the face of rising rates.

Bruce Kasman, JPMorgan’s chief economist, told CNBC that the Russian invasion of the Ukraine makes the Federal Reserve’s position more complicated. “There is a scenario where the growth hit starts to get more substantial. There’s also scenarios where the price increases are not as damaging to growth and it’s feeding inflation.”