Just as the pandemic-era uncertainties are finally starting to diminish, Canada’s housing market is facing a new set of risks.

Soaring inflation and additional Bank of Canada rate hikes are certainly on most borrowers’ minds, but that’s not all.

On top of the unspeakable human toll of the Russian invasion of Ukraine, the conflict is starting to have growing economic effects in Canada and around the world, from nervous financial markets and yet more challenges for already delicate supply chains to additional inflation pressures.

For Canada’s housing market, it could become a catalyst that brings an end to annual price gains of over 20%.

“…it’s hard to see the housing market becoming more feverish than it is now,” BMO senior economist Sal Guatieri wrote in a research note.

“…in a balanced market, house prices would normally rise more or less alongside family income—which rarely grows 4.5% in an entire year let alone a single month,” he added. However, as of January, the MLS Home Price Index was up a record 28% over the past 12 months and a whopping 46.5% since before the pandemic in January 2020.

But recent data are showing hints of changing dynamics in the housing market.

Early housing figures from some of the country’s local real estate boards revealed a rise in new listings, meaning more homeowners decided to put their homes up for sale. In markets desperate for new inventory, that’s a significant development.

“We have seen a slight balancing in the market so far this year,” noted Jason Mercer, the Toronto Regional Real Estate Board’s chief market analyst. “However, because inventory remains exceptionally low, it will take some time for the pace of price growth to slow.”

And in the fourth quarter of 2021, mortgage origination volume saw an annualized decline of 8.1%, according to Equifax Canada. The value of those originations was still up, but by a modest 1.2%.

How could the conflict in Ukraine impact inflation and interest rates?

As mentioned above, global supply chains have already faced countless disruptions, which has led to demand far outstripping available supply for many consumer goods, and higher prices as a result.

The escalation of the Ukraine conflict has now sent certain commodity prices—such as oil—soaring, which is putting further upward pressure on prices.

Canada’s annual inflation rate already hit a 30-year high in January of 5.1%. Meanwhile, south of the border, U.S. data on Thursday revealed a spike in inflation to a 40-year high of 7.9%.

All of this further complicates the Bank of Canada’s job ahead, which is to keep inflation at the 2% mid-point of its target range of 1% to 3%. On the one hand, the Bank can’t raise rates too quickly, in large part due to elevated household debt levels, but it also can’t allow inflation to run too hot for too long.

“Rising uncertainty (and the fact that domestic rate hikes will do nothing to influence global commodity prices) argue for a gradual pace of Bank of Canada increases with the next expected 25-bps rise in April to be followed by another 50bps in the second half of the year,” a team of RBC analysts wrote in a recent note. “But there remain risks that persistently strong price growth could unhinge inflation expectations and require a more aggressive response down the road.”

With all of this in mind, the Ukraine conflict inserts a whole new level of uncertainty.

As mortgage expert Rob McLister recently wrote in the Globe and Mail, “The next 30 days of war could rewrite the inflation and growth narrative again. For all anyone knows, the probability of recession next year could skyrocket, with rates tumbling back down.”