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Brexit: one expert speculates on what’s in store for real estate

by James F. McClister

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On June 23, 2016, citizens of the United Kingdom voted to leave the European Union. In the wake of the decision, the British pound fell to a 31-year low against the U.S. dollar, the euro dropped one percent, and U.S. residential real estate seems to be fine.

“As far as real estate, I don’t really see a terrible downside on U.S. residential real estate in the near future,” said Abby Shemesh, managing partner of loan acquisition firm Amerinote Xchange.

But even as Shemesh downplayed the effect of Brexit on the nation’s housing market, he was willing to speculate on what the UK’s decision to leave the EU could ultimately mean for the U.S.

Here’s what he had to say:

It absolutely will help foreign investment…

The share of foreign purchases in the U.S. real estate market has been falling. From April 2015 to March 2016, international homebuyers accounted for $102.6 billion in residential property transactions, which marks a more than $1 billion decline from the previous 12-month period. Shemesh believes Brexit will help that figure recover. “It absolutely will help foreign investment in big cities,” he said. “Yes, we’ve seen a downtick across the country in foreign real estate investment, but I believe that Brexit is going to have a significant, positive effect for foreign investors.” The downside, he explained, is that the influx of foreign money, mostly cash, will make purchasing more difficult for domestic buyers who need to rely on financing.

I do believe rates will remain low through the end of 2016…

The upside for domestic buyers is that Brexit could make financing a little less painful – at least in the short term. In the hours following Britain’s “leave” vote, speculation of the fallout abounded, wrapping the globe in a singular conversation to answer the question: what’s next? As far as the U.S. real estate market goes, the only consensus seemed to be that mortgage rates would go down. And they did. In June, the 30-year fixed-rate mortgage rate fell to a three-year low of 3.57 percent. Shemesh believes it could stay in that range for a while. “I do believe rates will remain low through the end of 2016, possibly into 2017,” he said, adding that the low rates could push back the Fed’s planned rate hike for this year until mid-2017.

Well, I do believe that home prices will go up in some major cities…

As a direct result of dipping mortgage rates, many real estate speculators also anticipate a surge in home price appreciation, but Shemesh refined that speculation, adding a little bit more context. “Well, I do believe that home price will go up in some major cities, especially the warmer climates,” he said, adding that the increases will mostly be resigned to the higher end of the market, which has lagged lately. “I believe that eventually penthouse and luxury home purchase will go into an uptick. We will see a little bit of a resurgence in those markets, specifically in the large economic centers like New York, Miami, San Francisco, Los Angeles, Chicago.”

…American money could be going into London.

The downside of more rampant appreciation, apart from a loss of affordability in areas where it is desperately needed, is that investors and, in particular, hedge funds – which Shemesh pointed out are the second largest investment buyer of U.S. real estate – are not interested in buying temporarily inflated properties. “A lot of real estate investors say, ‘look, the time to buy is when markets are in shambles.’ Right? And the real estate market is in shambles in London right now,” Shemesh said. Even before the two-year mediation period allowed for the UK and EU to work out their split, Shemesh warned investors could be going back to London. “So as far as the long-term effects of Brexit…American money could be going into London,” he said. “This trend could significantly affect global markets, which could significantly affect the way investors spending their money with regards to the U.S. real estate market or even the U.S. economy.”

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