The Good, The Bad and The Brexit

Suzanne DranowEveryone seems to be talking about Brexit, its political implications, its financial implications and what it means for the future of the EU. What you don’t hear a lot about is how Brexit might affect real estate — and the answer is “it’s  a mixed bag.”

Anyone with money in the markets knows that things have been a bit rocky with currency fluctuations (we’re talking about you, British Pound) and investor tepidness with fears that the rising dollar may negatively affect the American export market. Corporate bonds have also been on a bit of a ride as the most recent growth and foreign market projections seem about as current as a 1937 St. Louis phonebook.

With Europe already dealing with refugees, uncertain natural gas contracts and financially questionable member-partners, the EU needed the Brexit vote like Brazil needs more mosquitoes.  When investors feel like they are being tossed around by a stormy sea, the one leeward port they turn to is US Treasury Bonds. Considered by almost everyone in the universe as the most stable investment in existence, as more people buy bonds, the price of the bonds goes down.
Mortgage interest rates are most closely tied to the 10-year Treasury bond. With unease basically everywhere else in the world, the low bond prices mean that mortgage rates will stay at historically low rates for the foreseeable future. This is good for real estate at all levels of the market, but is especially good for all-cash investors and purchasers of luxury properties. If they are paying all cash why would they care? Because a little know secret is that even billionaires hate locking up huge chunks of cash for long periods of time, so after they take down the $10 or $20 million dollar vacation home with an all cash offer, they will generally get a loan on the property because with interest rates this low the cost of borrowing is also incredibly low.
Uncertainty is certainly bad, as it leads to shifting markets and a general unease among investors (and basically everyone else). While this is good for the folks who make Tums and Pepto-Bismol, people are turning green looking at their stock portfolios, wondering if they’re going to have the securities to liquidate in order to buy things all cash.
US real estate is considered the next best thing to US Treasury Bonds (and even better than them in many ways). Though foreign investment may be slowed or stalled, this only means that what may have been an over-heated market is slightly cooler (but still requires oven mitts).  That said, whether as an investment, an income producer or just a place to hang one’s hat, the smart money overwhelmingly considers real estate to be the safe play.

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