The United Kingdom last week voted to leave the European Union after a national referendum. As most of us woke up in the D.C. area on Friday, many were shocked at the result, which many viewed to be a guarantee that the United Kingdom would remain in the EU.
Now that the votes have been counted, there remain many mysteries and questions as to how the decision of the Brits will affect the markets across the pond as well as the entire world economy. How will the U.S. dollar be affected by the Brexit vote? How will the U.S. economy and real estate market be impacted by this decision?
One thing remains certain: Homeownership remains one of the strongest ways to hold wealth in the D.C. area.
Immediately following the announcement of Brexit, the pound, seen as one of the strongest international currencies, fell to its lowest exchange rate to the dollar in decades. This devaluation of the pound compared to the dollar at first glance makes future travel to the UK appear more appealing. But, how does this affect our market?
Home loans are about to be cheaper as the aftermath of Brexit unfolds. Speaking to interest rates, mortgage rates will continue to fall after the Brexit decision; though, rates have already been extremely low to begin with. With the fall of the pound, many investors moved their money from investment in the UK to a safer market, such as the U.S. As this money has poured into the U.S. market, we generally expect that Treasury rates will fall. With this, mortgage rates will also decline to historic lows.
Prior to the Brexit vote, homes in the area were considered at an all-time high and inventory very low. As to immediate aftershocks of the Brexit vote, nearly every international stock market felt losses in the opening trading on Monday following the vote. Even with the Brexit vote, the Washington-area housing market is seen as one of the strongest in the country. Sellers who are thinking of entering the market shouldn’t plan to see a huge change in sales prices since the area’s inventory is already so low.
However, because the international economy is showing declines overall, consumer confidence in entering the market may waiver. Even with lower mortgage rates, first-time homeowners and those thinking of entering the market may be dismayed and wait out to enter the market until the full effect of Brexit has taken place. Because of this, there may be an impact on the days a home is for sale on the market before going under contract.
As to current homeowners who do not wish to sell, many believe in the immediate aftermath of Brexit that one of the greatest markets that will succeed will be in home refinance, allowing current homeowners to achieve historic low rates through their refinance.
For investors and potential buyers that hold a lot of their wealth portfolio in stocks, their 401k, and who were interested in entering the market borrowing against this investment, Brexit may have weakened their buying power. The investor population that leans heavy toward investment holdings in the stock market tends to purchase within the luxury real estate market. Thus, one market that may be hardest hit with Brexit could be the high-end condominium and fee-simple market (generally considered at price points of $1.2 million plus in the D.C. area).
The Brexit decision has been a shakeup for the global economy. The decision may not have been expected, but the entire world is now seeing ripples from the decision of just one nation. The real estate market in the United States has the opportunity to capitalize on lower rates if buyers can remain confident in the value of homeownership.