There’s a lot of speculation on how the BREXIT vote will affect the rest of the world. Stock markets tumbled on Friday and gold prices spiked higher… but some experts say Britain’s exit from the European Union could be very good for U.S. real estate.
When British voters decided to exit the European Union last week, no one expected the referendum to pass.
U.K. Prime Minister David Cameron immediately announced he would resign over the next three months, as he was on the Bremain side and doesn’t want to be forced to lead a Brexit.
The vote sent a tidal wave of negative returns throughout the world’s stock markets, bond markets, currencies and commodities. The large-cap Dow lost over 270 points in the week and the S&P 500 dropped over 1.50%.
Many of the gains made over the year have been reversed, as many indexes are now below their 2015 closing values.
European currencies also got battered. The British pound dropped by more than 11.0% compared to the dollar. Yields on long-term government bonds fell even further.
Gold prices climbed more than $85 an ounce – a 27 month high. Silver surged as well to $18 an ounce, resulting in year-to-year gains of 33%.
It’s difficult to know how BREXIT will affect Britain or the global economy, but we do know that it’s creating a lot of uncertainty and fear about what’s down the road.
Some say it might create a domino effect in the UK, creating even more uncertainty. The French right-wing leader is already calling for a similar exit. If France left the European Union, that could have a big impact on the Euro. France uses the Euro while Britain does not – it uses the Pound. France would have to revert back to its old currency, so the process of exiting the EU would be even more complicated for France.
Experts are only speculating, but they say if the fear and uncertainty continues for too long, like weeks or months, U.S. consumers may pull back on their own spending. Of course, that would weaken the economy here.
And if the stock markets continue to tumble, that could also weaken confidence and further affect the strength of the U.S. economy. Our economy has been sluggish already.
The U.S. dollar spiked because of BREXIT, while the British Pound dropped in value. While that’s good for U.S. travelers in Britain, it’s bad for trade. Actually trade between the U.S. and Britain is a small portion of all U.S. trade, but U.S. products have suddenly become more expensive because the dollar is stronger. And, that will take a bite out of exports. Companies that could be affected by a drop in exports include those with big world markets like Apple and Coca-Cola.
In the midst of all this bad news and potentially “more” bad news, there’s some good news for real estate investors.
For one, mortgage rates fell again. That’s because all this global uncertainly has investors flocking to U.S Treasuries.
This could encourage more home buying activity, which is good for sales but could drive prices up further.
Lower rates could result in more cash-out refinances as well, as people take their home equity and improve their homes or take that expensive vacation they couldn’t afford – thereby stimulating the economy.
As good as lower mortgage rates might be for real estate activity, the bloodbath in stocks could affect high end real estate. That sector has already slowed down, very likely due to January’s volatile stock market and the crash in oil prices that affected many of the world’s wealthy.
With such a low yield environment in Europe and Japan, we can expect more foreign money to pour into the U.S. in search of better yields than they are getting at home.
As reported in Fortune, Senior Real Estate Economist for Axiometrics, KC Sanjay says the U.S. real estate market is about to benefit from BREXIT because of new rules here.
That’s especially true of major U.S. cities like New York, San Francisco, Miami and other cities that have been attracting those international buyers.
Sanjay says: “The U.S. government made international investment in America easier by easing the tax burden on many of these deals. For example, a non-U.S. investor can now own up to 10% of a REIT before incurring federal taxes – up from 5%. This December 2015 action also exempts certain foreign pension funds from taxes from their U.S. property holdings.”
So what’s the best course of action for U.S. real estate investors? What should you do right now?
Beware of markets where foreign investors are driving prices up and forcing yield compression. Stay in markets that are out of the spotlight but have the right metrics in place.
It’s more important than ever to understand the fundamentals of investing. You can get high level investing advice at www.RealWealthInvestorAcademy.com for just a $10 membership fee.
If you are in the stock market and find the volatility too stressful, then consider this upheaval as a lesson to balance your portfolio.
Start learning about private money lending, which can offer you a steady return, secured to a hard asset, that is not subject to daily news crisis.
Investor Tip: Consider selling your high priced real estate and exchanging it for cash flow properties in markets that are off the radar but poised for growth.