It feels a little uncomfortable to talk about real estate in the context of a war affecting real people, including many in the Persian community I know and work with, so I want to acknowledge that I hesitated before writing this. But the reality is this is the conversation people want to have. I’ve had it three times in the last two days, so here we are.
If you’ve followed this newsletter for a while, you know I don’t make predictions. Anyone who tells you they know exactly what the housing market is about to do is either guessing or selling you something. What I try to do instead is look at patterns and figure out which ones actually matter right now.
Before the war dominated the headlines, mortgage rates had dipped below 6 percent for the first time in about three years. When you hear an “average” rate of 5.875 percent, remember what that actually means. A meaningful share of buyers, especially in higher-price markets like Northern Virginia, were getting quotes even lower than that. I was seeing lenders quote around 5.5 percent on 30-year fixed mortgages, and even lower on adjustable loans. Five and a half percent is a big psychological number that gets buyers not only off the sideline, but motivated to buy.
For many homeowners sitting on 3 percent pandemic-era mortgages, that’s roughly the point where moving starts to make sense again. The payment difference becomes tolerable. We were getting close to what many hoped would be an inventory unlock moment.
However, after the war began last week, rates quickly moved back above 6 percent and have been climbing again. The first effect of a shock like this, similar to other major political or financial news, is hesitation and uncertainty, which is never helpful for sellers.
People often ask how wars affect real estate and the honest answer is that historically they don’t have a major long-term impact on home prices. In fact, similar to Government shut downs, it simply delays would be buyers and creates pent up demand.
With that said, this moment feels more confusing. Several forces are happening at the same time that normally move in opposite directions. During global conflicts or financial uncertainty, investors often rush into bonds, which can push mortgage rates down. At the same time, oil prices are rising, which fuels inflation and pushes rates up. Both are happening right now, but rates are moving higher, and that plays an outsized role in keeping the housing market moving.
My initial instinct was to compare this to the market after the Gulf War or Iraq, but the better comparison is the Russia–Ukraine war that began in early 2022. That conflict pushed energy prices sharply higher, accelerated inflation, and helped trigger the most aggressive interest rate increases in decades. The Fed was already raising rates, but Treasury yields shot far above normal levels, reaching extremes we rarely see pushing rates unnaturally high.
Ironically, the war may flip that dynamic. Northern Virginia may be one of the few places where a conflict in the Middle East actually stabilizes the housing market instead of destabilizing it.
We have more than 175,000 federal workers here, the largest concentration in the country, plus an even larger defense industry workforce. Over the past year there’s been real uncertainty from workforce reductions, white-collar layoffs, and hiring freezes at defense contractors. The housing market had cooled over the last three years, but we were starting to see real momentum earlier this year.
Congress had already approved more than $150 billion in supplemental defense funding, bringing the Pentagon’s total budget to roughly $1 trillion. That money doesn’t just go overseas. A large portion flows directly to companies headquartered right here in Northern Virginia: Leidos, SAIC, Booz Allen Hamilton, MITRE, Northrop Grumman. Some of these firms were quietly cutting staff six months ago. That is likely about to change.
Higher uncertainty makes buyers cautious, which cools demand. At the same time, refinancing activity and rate volatility discourage homeowners from listing, which limits supply. When both supply and demand pull back together, markets usually move sideways rather than crash or go up.
If you’re a buyer, the hesitation you’re feeling is completely rational. However, the period right after a geopolitical shock is also when negotiations become easier. Sellers are watching the same headlines you are. If you plan to own the home for five years or more, trying to time global events or the market as a whole rarely works.
If you’re a seller, the worst thing you can do right now is panic and slash your price. Rates are still lower than they were at their peak and still close to three year lows, prices have already adjusted over the past few years, and the buyers in this market are still motivated.The market may feel soft in the short term but at this point, there is no point in making any adjustments. Simply price right and make the home as turn key as possible.
Markets hate uncertainty more than they hate bad news. Once the scope of this conflict becomes clearer, buyer behavior will likely normalize faster than people expect. That’s what we’ve seen after nearly every geopolitical event over the past few decades.
Northern Virginia sits in a unique position because defense spending generated by wars flows directly into this local economy. The real risk comes from inflation driven by oil prices which raises interest rates. The upside is the possibility of renewed defense hiring that strengthens the region’s employment base. Those two forces are pulling against each other right now. Where they land will shape what this housing market looks like this Spring.
As always, I’ll keep watching the data and sharing what I see. And if you want to talk through your specific situation, whether you’re thinking about buying, selling, refinancing, or waiting, reach out. That’s what we’re here for.