According to an article by Chris Matthews in Fortune Magazine, the U.K.'s decision to leave the European Union cold mean higher home prices in the U.S.

It may seem strange that a political decision in the U.K. could have any impact on American housing prices, but such is the nature of an increasingly interconnected global economy. 

First, one of the immediate effects was to send yields of the 10-year Treasury falling, which is going to put downward pressure on mortgage rates, though slowly and not by much yet. Mortgage rates typically move with delay, especially in the way down. But eventually, lower mortgage rates means higher home prices because low rates enable homebuyers to afford a more expensive home with the same income. 

Second, according to the article, some analysts believe that Britain's exit from the EU could lead to increased demand for American real estate, especially in major cities. According to KC Sanjay, Senior Real Estate Economist with Axiometrics, "International Investors have been increasing their holdings in the U.S. over the past several years, as they have gained a better understanding of the American apartment market and appreciation of the sector's profitability."

And that means that buyers are increasingly looking at the U.S. real estate market as a reasonable alternative to the London market, which has long been a haven for the global rich to stow their excess wealth. With uncertainty over what the rules will be regarding foreign investment in a post-Brexit world, many of these investors will be looking to reduce their exposure to the U.K. and look at the U.S market. 

If you live in a major U.S. city, it's therefore reasonable to expect higher real estate prices both for commercial and residential. In addition it is a good time to take advantage of the lower interest rates for mortgages, as the Brexit decision will likely put a damper on interest rates for the near future. 

 

Posted by Andreas Holder on
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