I am going to start off by saying, if you don’t have time to read this, then jump down to the end to get a summary of what the U.S. Real Estate Market is like after Brexit.
For those of you who have, or haven’t been paying attention, history was made on June 23rd 2016, from what is known as Brexit- Britain’s Exit. The final vote was cast by 51.89% voting to leave, while 48.11% voted to stay. So, the U.K. has voted to leave the European Union (EU). It also doesn’t help that after the vote, the Google search for ‘What is EU’ jumped by 400% from people living WITHIN the U.K.
Other than English tea, Shakespeare, Harry Potter, Adele, David Beckham and hit songs from the Beatles, most people in North America may still think about Britain as a vacation destination. This vote, however, started really raising the interest of everyone around the world, anxiously waiting for the result of the votes to roll in. The enthusiasm about Brexit got more intense on the night of the vote, as North Americans- and I guess the rest of the world- were trying to understand why Lindsay Lohan kept tweeting about it so much, with really odd tweets.
Whether you feel it right away, or not, Brexit will affect you in North America for a variety of reasons. However, since we are focusing on Real Estate, we will focus mainly on this topic rather than all the ways that it will affect the economy. As a real estate agent, you would sound wicked smart if you can easily explain how the world around us affects the buying and selling prices of homes. To sound even smarter, it would be even more awesome to give helpful advice to add value in helping your client(s) –(hoping you have more than 1)– net more money whether they are buying or selling.
Alright, let’s breakdown how BREXIT effects the US
1. The British Pound currency dropped by at least 4.5% against the U.S. Dollar
What this means: Vacationing is cheaper in the U.K. and things that you buy overseas will be cheaper too, so consumers are better off. Things that we sell overseas will be more expensive to consumers in the U.K ,so they will buy less of it. This is not good news for business owners and the export industry.
A stronger dollar could make imported items cheaper for U.S. consumers, which could offset consumer fears about volatile global markets. But at this point, fears of a stronger dollar appear to be outweighing positives of it. -Patrick Gillespie @CNNMoneyInvestment
2. The Housing Market in the U.K. has made the prices of houses decrease by 15%, and transaction volumes down by 20%
What this means: The uncertainty of the market is making it less attractive for global investors to invest in Real Estate in the U.K. The attention is now on the U.S. market- specifically major cities such as New York and Los Angeles. This has made housebuilders in the U.K. take a hard hit. Last year, the average price of a property in London was approximately $841,566 USD. The rent set for a one bedroom apartment in the city centre was approximately $2,287 USD, while outside of the centre cost $1,588 USD, according to numbeo.com
“And that means that investors are primed to look at the U.S. real estate market as a reasonable alternative to the London market, which has long been a haven for the global rich to stow their excess wealth.” – According to KC Sanjay, Senior Real Estate Economist with Axiometrics.
3. There is volatility in Global Stock Markets
What this means: The morning after the vote, better known as the hangover, the stocks markets decreased tremendously, with it being the lowest in 31 years. Of course, the U.K. is a big player, it is the second largest economy in the European Union, behind Germany, so, it becomes a ripple effect for the rest of the world, creating uncertainty in the stock markets. This could lead to panic and global instability. Keep in mind that your buyers who may have their money tied up in stocks, are not as rich as pre-Brexit days. With the volatility in the stock market, there is less wealth, leading to less overall foreign investment in real estate.
“Stock markets around the world have reacted with shock: The Tokyo market was down 7%, Hong Kong down 5% and Sydney is off 3.5%. In Europe, the German market dropped nearly 8%, as did the French. This according to The Guardian.
4. Mortgage Rates in the U.S. will decrease
What this means: Getting straight to the point; mortgage rates and loans are now cheaper in the U.S. Why? The U.S. Federal Reserve will not be able to increase the rates due to the effects of Brexit. As forbes.com stated “Typically, mortgage rates fall when Treasury rates fall, and Treasuries just took a dive as money poured out of the U.K. and elsewhere into the safer bet of U.S. markets. This means that more buyers will have access to higher loans with the same income. Meanwhile, in the U.K. there has not been any immediate changes on interest rates, it could fall to restore order to the market, each half point change would add, or subtract, approximately £25 a month. For example, a 1 point decrease would make it £50 cheaper to repayment a month for a mortgage. A 1 point increase would add £50 a month to mortgage payments. (Note: £25 is approximately $35 USD- yes I calculated that for you- you’re welcome).
5. Future Uncertainty
What this means: I had to add this in, that there is a lot of uncertainty as to what is going to happen next. You have other countries who are also part of the EU starting conversations that they too would like to cast a vote for independence. There have also been talks to take a revote in the U.K. or to appeal the decision. Especially since the vote doesn’t mean that they are no longer part of the EU, but it’s a process to begin and will take approximately 2 years. So, it might be wise to wait a little longer and observe what is going to happen, or could potentially happen next, before making any final, irreversible decisions, like leaving the EU.Not only is there uncertainty about the future of EU, as other countries are hinting the possibility of leaving as well, but the U.K. is also facing the possibility of a similar issue itself. Essentially, the U.K. left the EU and now other wants to leave the U.K. So the ripple effect of uncertainty will continue, which can further affect mortgage rates, businesses, employment and the stock market in the U.S.
Also, if you’re wondering what the Royal Family can do about this, the answer is nothing. They are strictly there as a symbol and are not involved in political affairs. No royal members voted in this matter. Their role is to remain neutral. It’s like Bill Clinton having a say in Obama’s decisions, and ex-president doesn’t have the authority they once did. Speculations are rising, however, that the Queen is not happy about the outcome of the vote. I also don’t know what this means, but the morning after the Brexit vote, Donald Trump made his way over to Scotland. He gave a speech as to why Brexit was a good thing the next morning, to a group of people whom the majority voted to stay and were upset about Brexit. As if a hangover wasn’t bad enough, it’s like waking up the next morning and finding Donald Trump in your bed. Especially when he wasn’t even invited to a party you were forced to go to.
So here is what’s happening in the U.S. Real Estate Market after Brexit:
- Mortgage rates are decreasing in the U.S.
- Buyers can access more and higher loans
- The prices of homes will increase due to more buyers in the U.S.
- More real estate investors will be looking to the U.S. to build their wealth
- The U.S. is seen as a safe place for real estate investment
- Luxury sellers may find it more difficult to sell
- High end condos are being explored as a great investment from foreign investors, according to Forbes.com
- Buyer’s planning to cash out their stocks or borrow from their 401(k) are advised against it
- Real estate agents have increased opportunity to capture investors money in England and direct it to a stable U.S. economy
- Stocks and employment from the aftermath, may make buyers think twice about buying a home, leading to sellers receiving fewer offers and taking a little longer to sell
- Still the best strategy is to price the home correctly, which is always important
- The prices of property in the U.K. will decrease