Hard to watch the news the past few days and not hear about the possible ramifications of Great Britain’s “Brexit” from the European Union. You may be familiar with the term, or similar terms such as the “Grexit” which was coined when Greece was considered a possible candidate for leaving the Union.
A little history – the European Union as we know it today, came into being after the signing of the Maastricht Treaty in November of 1993. The idea was to unify member nations, and create a common policy around the movement of people, goods, services and capital within the borders of the EU. In 1999 the Euro was introduced and was fully implemented by 2002. In brief, the EU was established to ease the flow of European travelers and trade goods, from one nation to another, and create a common set of laws governing that movement that all members would abide by.
Many European nations, under the weight of a slowing global economy, debate around immigration policies, and the perceived loss of control of managing both have considered exiting. This month Great Britain put it to its electorate, and at this point the will of the people seems to have mandated a change.
Aside from a new story hitting the 24 hour news cycle, what does that mean for us here in the U.S. – and more specifically – what does that mean for those of us engaged in current or future real estate transactions?
Immediately on Friday, after the results of the vote on Brexit were announced, the world market shuddered a bit. As I complete this post, the major U.S. markets closed down a second day, even after having had the weekend to absorb the news. The market as is often said, hates ambiguity and uncertainty. Specific to investments we would advise you reach out to your advisors and investment professionals. What we can speak to is the effect of this pertinent to interest rates. In the short term at least, it seems to point to opportunity for those looking to buy or sell real estate.
As of Friday, yields on the 10 year treasury – which directly affect mortgage rate activity – fell to an intraday low of 1.48% and came back up to about 1.58 later in the day. Both numbers represent 4 year lows and result from an increased demand from foreign investors for U.S. debt.
In addition, Janet Yellen current head of the Federal Reserve has been quoted as saying the Brexit could have, “significant economic repercussions for the U.S.” and “Usher in a period of uncertainty.”
Based on these factors, the silver lining belongs strongly to those that are favored by historically low interest rates. Prior to this specific news of uncertainty, rates were strongly expected to rise. The U.S. economy has shown signs of strengthening and the Federal Reserve was poised to take steps to slowly normalize rates over time. Although the future is still anyone’s guess, today rates look like they will once again drop to historically low levels at a time when the Real Estate market – especially in our region – has been remarkably hot to begin with.
In a nutshell…if you’ve been looking to buy a home and would be financing its purchase, you may want to do so at a time when rates are in your favor. If you’re contemplating selling a home and your potential buyer would need to finance that purchase – Ditto.
This story is far from over, but just as you should seek professional advice from a financial expert on how it may impact your retirement or 401K, feel free to reach out to The Stephen Cooley Real Estate Group and our preferred lending partners to help you maximize any positive impact it may have on your plans to move. We’ll be following the story as it continues to develop and welcome your comments below.