Two Competing Forces Should Prevent Limited Brexit Impact to U.S. Home Sales
By Mark J. Donovan
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The financial and economic effects of last week’s decision by Great Britain is still being felt around the world, and will so for some time to come. What the Brexit means to the United States housing market remains to be seen. However, it’s very likely there will be little change. Why so? There are two factors that will, and already are, competing against each other that will nullify any significant change.
On one side, stock markets were immediately hit hard due to the United Kingdom’s vote last Thursday, and they continue to roil with all of the uncertainty that comes with its decision to exit the European Union. |
As a result, trillions of dollars have been lost in the world’s stock markets in recent days, which is leaving both large and small investors with an awful pit in their stomachs. And because of this angst, and the fact that they now have less capital at hand, would-be home buyers will now pause in moving forward with making such large investments. But for how long?
| On the opposite side, there is a competing force that will probably make prospective home buyers limit their pause before jumping back in with their decision to purchase a home. What force is that? Lower interest rates that will, and are already occurring, as a result of last week’s seismic vote.
Due to the high level of uncertainty in the United Kingdom and Europe, international investors, including Brits and Europeans are now pouring money into safe-bet, albeit low-return, investments such as U.S. Treasury Notes. |
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Consequently, the high demand is pushing down yields in Treasury Notes, and as a general rule, when U.S. Treasuries rates fall, so do home mortgages.
| Thus, the lower mortgage rates will tempt nervous home-buyers back into the housing market sooner rather than later. As soon as prospective home buyers realize the world is not coming to an end due to Brexit, they’ll begin to jump back into the housing market before the rates begin to rise again, and/or the housing prices begin to rise further due to the increased demand.
One reason the housing market has seen a resurgence in recent months is due to lack of inventory. If that inventory remains low, and more buyers suddenly jump back into the market, the laggard prospective home buyers will feel the pinch of having to pay more for their dream homes than what they had thought pre-Brexit. So although the Brexit vote was a monumental decision by Britons, it doesn’t mean the world is ending soon, and most likely the mid to long term impact to the United States housing market will be negligible. |
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Consequently, if you were a prospective home buyer pre-Brexit, I wouldn’t wait too long to take advantage of nearly all-time low home mortgage rates. Everyone needs a place to live and if you have a growing family, a long term investment like the purchase of a home is rarely a bad financial decision.
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