In a close vote, 51.9 percent of British citizens voted for the United Kingdom (UK) to leave the European Union (EU), an economic and political partnership involving 28 European countries to foster economic cooperation.
“The world economy has been flat and sluggish for the last five to seven years, particularly in the United States and Europe. South America is declining, the Middle East is in turmoil and China is financing their growth with a huge amount of debt,” says Steve Murray, founder of REAL Trends, a business and real estate consulting firm. “The UK Exit from the EU shows us that while the economy of the world is interconnected. No country has to believe that its fortunes are tied to each other. The British grew tired of the bureaucrats in Brussels trying to run their lives,” says Murray. “It’s possible we will see a similar landslide in the United States later this year, with the presidential elections.”
What does that mean for real estate?
“While the overall impact of the UK’s exit from the EU will take several months to become clear, uncertainty will send investors rushing to safe havens, including U.S. Treasuries,” says Steve Hovland, Director of Research at HomeUnion. “As a result, investors and homebuyers can expect low-interest rates for longer and a pause on interest rate hikes from the Fed until at least September. Even then, the volume of capital flowing into the safety of the bond market will likely mute any impact the Fed has with a 25 basis point lift in the funds rate. The average 30-year mortgage rate is expected to remain below 4 percent into 2017,” he shares.
“The United States has always been seen as a safe haven,” says Murray. “I fully expect that the dollar will strengthen on this news and inflows of capital to the United States will increase. I think that, in particular, income-producing residential and commercial real estate are some of the safest asset classes available today,” Murray adds.
According to an article on Housingwire.com, some experts say that the Brexit vote could result in U.S. interest rates falling even lower.
Previously, the fed had predicted that it would be raising rates possibly even as soon as July, however that may not be an option anymore. In fact, before the Brexit decision, Janet Yellen, chair of the Board of Governors, indicated that a rate hike was not out of the question, and may still be on the horizon. Read more here.