What Brexit might mean for Real Estate

Services for Real Estate Pros with Commission Express of Western Washington

What Brexit might mean for Real Estate

It's the morning after and a new phrase is now in our vocabulary for the foreseeable future - Brexit - meaning the exit of Great Britain from the European Union (EU).  The EU is nearly 60 years old, originally called the Common Market, and began as a free trade zone but has evolved into much more.  That much more has had its upsides (free movement across borders, easy search for labor across countries, tarriff declines), it has also had it's complications (immigration law, environmental law, regulation).  Britain is a large, wealthy player in the EU and it's exit creates uncertainly not only for the British economy (which has benefited from foreign investment because it is in the EU) and for the EU itself (if Britain can leave, who's next?).  

For the US, the impacts are indirect but significant.  While a recession in Britain doesn't have a large impact on our export market (British trade makes up less than 1% of US GDP), a decline in British and European trade does impact Asian countries (for whom Europe is a large export market).  A decline in Asian economic growth (as well as Eurpopean growth) will have ripple effects in the US.

The immediate impact of Brexit is market/economic uncertainty.  And when markets are uncertain, there is a flight to quality and safety.  Thus, foreign currencies are down today versus the US dollar.  The 10 year Treasury (the benchmark often used for US mortgage rates) is down to 1.566% - incredibly low.  The Federal Reserve held off raising interest rates in June due to the uncertainty that Brexit could bring - now that the uncertainty is here, don't expect any increases in the Fed Funds rate this year.

A stronger dollar means US exports cost more abroad - communities that rely on exports may see a decline in local economic strength and employee growth.  This is never good for real estate.

A flight to quality in Asia could mean more US real estate investment (as we have seen over the past 5 years).  US real estate is often seen as a safe haven relative to Asian markets.  With currency declines, real estate might turn out to be a nice place to park foreign capital until the next boom overseas.

Low interest rates on mortgages could continue to support rising home values.  In some markets that can mean more first time home buyers - but in others that could mean more housing unaffordability for the average home buyer.

Brexit will not happen overnight - it could take two years to negotiate the exit from the EU, let alone enter into negotiations regarding independent trade agreements with other trading partners (as Britain goes it alone).  Hopefully it doesn't take that long for the rest of us to decide what this means for our local economy.

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Commission Express of Western Washington
4500 9th Avenue NE, Ste 300
Seattle, WA 98105
Phone: 206-829-2440       FAX: 206-357-9355

About the Author:  Michael Goodheim, is the owner of Commission Express of Western Washington, which provides cash flow solutions to real estate professionals (agents and brokers) by purchasing their commission receivables on pending transactions and giving them commission advances.  With more than twenty years of finance experience, Michael writes on a wide range of topics that assists others in managing their cash.




Comments (1)

Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

Excellent analysis Michael. All I can say is that I'm glad I'm not selling property in London right now!

Jun 24, 2016 05:04 AM