By now, everyone has a fairly good idea of what BREXIT is and how it impacts Britain and the EU. The vote to “Leave” rocked the civilized world, as most of the UK determined that they did not, in fact, wish to be a part of the European Union, tipping the global economy on its ear and causing chaos in Western Europe. What does BREXIT mean for the US, and how will it affect the real estate market?
• Positive effects for U.S. REITs. These kinds of investments are considered safe, and they offer yield. In direct contrast to the rest of the stock market, stocks of real estate investment trusts went up in the wake of BREXIT. REITs will also benefit from rising commercial real estate values because the trend of foreign investors pouring money into the U.S. office, retail and apartment space is being accelerated – especially in regard to Chinese and Middle Eastern money entering the U.S.
• Positive effects for luxury housing. People will turn away from the UK for secondary housing, and shift their focus to the U.S. – specifically New York and San Francisco markets. These are always the gateway buyers markets for Eastern Europeans, and we’ll see more Western Europeans seeking to take advantage of U.S. homes since traveling to the UK will now not be as simple and inexpensive as it was before.
• Positive effects for mortgage pricing. Interest rates are already sliding a little with the spike in foreign interest in U.S. properties. This means that U.S. buyers will also pay less over 10 and 20 years for their homes. Competition between funding sources will get heavier, and foreign interests will drive costs lower.
• Positive effects on home values. Lower mortgage rates mean U.S. homebuyers can afford housing on a higher tier, and equity builds more quickly. This could mean upward mobility for an entire sector of U.S. first time homebuyers in particular. Affordability is key for the middle class.
• Positive effects for commercial real estate. Commercial properties will see an even more marked spike in value, as such properties offer even more opportunities of investment. The depreciated pound sterling has provided a short-term buying opportunity for USD and euro based investors, who can now shift their focus away from London’s sliding market and into the U.S.
Many of these effects are geared to the longer term, aside from the fifth item; much depends on what happens in Britain over the next year. While many seem to expect the referendum to be reversed with a new vote cast to Remain, the upheaval in the power structure and changing of the guard as both major political parties continue to scramble could cause reversals and changes at any time.
The best advice for now is to take advantage of those opportunities that hold low risk for the long term – such as REIT investment – and not to count too heavily on the immediate effects of BREXIT holding fast until the dust settles a little. Those seeking to buy anyway may find a more favorable market and better mortgage prices for now, but BREXIT shouldn’t be the sole reason to purchase U.S. based properties at this time, not for the average homeowner.
Instead, talk with a real estate agent about your options, and make sound decisions based on your specific situation and needs, rather than getting swept up in the wake of a BREXIT affected market. That way you can weather whatever happens across the pond without making your entire decision based on an event that is still unfolding.
