As markets deal with Russia’s aggression on Ukraine, mortgage rates are falling. This means that home prices will continue to rise.

According to Mortgage News Daily, the average interest rate for the 30-year fixed mortgage has risen by close to one percentage point since the beginning of the year and reached 4.18% last Friday. The rate is expected to drop below 4% on Tuesday.

As the traditionally busy spring season begins, this will increase homebuyers’ purchasing power. Record-breakingly high house prices will continue to rise. CoreLogic released a Tuesday report that showed prices in January rose 19.1% year over year. CoreLogic’s first price tracking program began 45 years ago. This is the highest level of prices growth in over 45 years.

“In December and January, for-sale inventory continued to be the lowest we have seen in a generation,” said Frank Nothaft, chief economist at CoreLogic. According to CoreLogic, “Buyers continue to increase their bids for limited supplies.”

Nothaft said that rising mortgage rates have made it more difficult for buyers to afford the loan. Price growth will slow over the next few months. However, that depends on the rate of drop. This could happen quickly, considering the impact of other factors on the mortgage market that are not related to the Ukraine crisis.

Loosely, mortgage rates track the yield of the U.S. 10 year Treasury. This fell to the lowest level since February. Russia’s invasion has caused volatility in the market.

At the moment, mortgage rates are being pulled back by Treasurys’ move. Demand for mortgage-backed securities is a more direct driver of mortgage rates. These bonds are often similar to the 10-year but they do not always. And now is not one of those times.

Contrary to Treasuries and other Treasuries the MBS length can be adjusted depending on refinance demand. The 30-year term of a fixed-rate loan is rarely longer than 30 years. People who sell their home or refinance faster will see the bonds term expire sooner. Matthew Graham is the chief operating officer at Mortgage News Daily. He says that due to rising rates, more refinance opportunities, current MBS are unlikely to last for more than five more years. 

In the last three months, 5-year Treasuries rose 0.10% faster than 10-year Treasuries. They have struggled to keep up with the 10-year because mortgage bonds behave like the shorter-duration 5-year Treasury Note.

Graham said that MBS is being affected more by the Fed’s outlook on bond buying than Treasuries, because Treasuries account for a higher percentage of total demand for new MBS. MBS prices must fall further if Fed decides to leave (which is what it’s doing).  Lower MBS rates equals higher rates. All else being equal 

Due to the current geopolitical tensions however, there is more demand for short term debt. Therefore, mortgage rates keep up better with the larger bond market. It is unclear how long this will continue, as it all depends on the events in Ukraine.