BREXIT AND REAL ESTATE – WHAT IS THE IMPACT ON THE REAL ESTATE MARKET?
Britain’s vote Thursday to exit the European Union has already had a major impact on the world economy. It has brought a new volatility to the world’s stock markets, an increase in the value of the dollar and a decrease in mortgage rates.
How will real estate be affected by these developments? Will the resultant uncertainty cause U.S. real estate markets to be flooded with investors flocking to the U.S. as a “safe haven” to buy? How might this affect us locally?
The rise in the dollar has, as expected, put downward pressure on long-term mortgage interest rates. As rates, already at historic lows, drop even further, that could also help drive up sales of all types of U.S. real estate, including the residential sector.
If you’re a buyer or want to refinance, you may want to lock in a new low rate. It’s anyone’s guess as to how long this opportunity might last in a volatile Brexit marketplace. A further drop in mortgage interest rates could give life to a new wave in home-mortgage refinancing, as homeowners rush to lock in historic low interest rates. Not a bad idea, if you intend to stay in your home for several years.
Overall, home prices in most of our local markets have been at or near a nine year high. As a result, the inventory of unsold homes has been steadily growing, in some markets approaching a 4.5 month supply. A six–month supply is viewed as an equal balance between supply and demand, otherwise known as a “normal” market. Multiple offers and overbidding have become so commonplace that many sellers have forgotten what a “normal” market means.
If you’re thinking of selling, you may want to list your home at the front end of the “surge.” Indeed, if this influx of new buyers and lower interest rates foretell continued increase in listings, at what point will supply exceed demand and cause prices to retreat, perhaps exacerbated by a rising dollar adding to a weakening U.S. economy at the end of an anemic 9 year “recovery?” If your horizon is five years or less, this is something to seriously consider.
So, there are three wildcards to ponder:
- New money inflows: Where will that new money go? Different foreign buyers are attracted to different cities, and different areas within each city. Just because there are new inflows doesn’t guarantee that it will come to you!
- Mortgage rates: Will the Federal Reserve and the financial markets respond to Brexit with even lower mortgage interest rates? Stay tuned!
- Inventory levels: During uncertain times, there is often a rush to do “something.” With the high prices and the nervousness in the financial markets, more sellers may put their homes on the market, leading to increased inventory. At what point will that result in a leveling off or softening of prices.
We’re facing a new “normal.” These are indeed interesting times. If you’d like to discuss a neighborhood or your specific home, I’d be happy to talk with you. Just contact me.