On June 23, the U.K. voted to sever its economic and political union with Europe after a quarter century. The British exit—Brexit— came as a great surprise, shaking financial markets and lowering the outlook for economic growth in the U.S.
Legally, the divorce won’t be final for years, but markets and governments are reacting now. In the long run, the vote raises big questions about what’s next for the economy and global security. Suddenly, the future looks different.
In short, Brexit delivered a big dose of uncertainty.
“Buying just got riskier. Selling just got riskier. Lending just got riskier, all because the market is more turbulent and less predictable,” Redfin chief economist Nela Richardson said. “It takes a certain amount of confidence to buy a huge asset like a house and markets just lost their confidence.”
While the headlines look bad, remember that the U.S. economy remains fundamentally sound. And global unease has a silver lining for homebuyers—cheap loans.
Brexit is big, but it’s today’s news. Getting a handle on the housing market begs for some crystal-ball gazing into tomorrow’s news. We can’t see the future, but here’s what we do know.
It depends. Nationally, price growth might slow in the near term. Buyers with money in the stock market aren’t as rich as they were yesterday and they’re spooked. But mortgages are about to get cheaper, which will give them more incentive.
“We don’t expect a price surge and we might see dips in some markets,” Richardson said. “What happens next is about consumers and their ability to process uncertainty. Are buyers going to be less likely to bid up a house by $100,000? The fear factor might keep people from making their best offer.”
Luxury sellers in particular will feel pain. Foreign buyers consider U.S. real estate a safe investment and have been parking cash in Miami, New York and other cities. Some of them probably are shopping for high-end condos right now, but with stock markets losing value, there’s less wealth to go around.
Loans are about to get cheaper. Typically, mortgage rates fall when Treasury rates fall, and Treasuries took a dive last night as money poured out of the U.K. and elsewhere into the safer bet of U.S. markets.
Mortgage lenders are braced for a rush of refinance applications.
“It is unclear whether this will just be a short-term disruption or whether it will have a longer-term impact,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “Our best guess at this point is that the impact on the mortgage market will be to keep rates lower for longer.”
Probably, but if you were planning to cash out stock holdings or borrow from your 401(k) to do it, think twice. Financial markets tumbled last night and you might have less wealth than you thought.
As rates fall, do the math and consult your lender or financial advisor. It might be smart to put less money down, preserve your cash or even take out a bigger loan.
Mortgages have been too hard to get for a long time now. The good news is Brexit and its aftermath shouldn’t make that worse.
The fundamentals still apply. Most economists lowered U.S. growth forecasts after the Brexit vote, but job growth has been good and unemployment is low.
Whether that continues is anyone’s guess, especially after last month’s disappointing jobs report. Going forward, corporations might be even more cautious with hiring and investment than they have been.
Home buying is personal. If you have the desire, money and maturity to buy a house, don’t let Brexit stop you.
Again, the fundamentals still apply. Homes are in high demand and there are too few of them to go around. Brexit won’t change that.
Last month, home sales hit their fastest pace on record. The unprecedented global pivot we’re going through now might tap the brakes on that speed as buyers pause, literally, to take stock. For sellers, that might mean houses sit longer on the market, get fewer offers and take longer to close.
Brexit also highlights a truism that whatever the market conditions, pricing right is always the best strategy.
— With Callie Monroe
