MORTGAGE WATCH | March 18, 2019

How Brexit news can have a ripple effect on U.S. housing

Sometimes it’s hard to believe that what is happening overseas could affect us here in the U.S. — especially our housing market. According to Realtor.com’s Claire Trapasso, however, even though Britain is “across the pond” from America, growing chaos around the Brexit, Britain’s planned departure from the European Union, is expected to have global ramifications.

Last week, Britain’s Parliament voted not to leave the EU. Not, that is, without a deal in place that would smooth the country’s March 29 departure. This comes right after British lawmakers shot down the British prime minister’s exit plan. Another vote to extend the deadline is slated for Thursday, but nothing is clear at this point.

“Not having a deal nailed down could lead to all sorts of economic problems for Britain and across Europe,” says Trapasso, who goes on to say that international events of this scale don’t happen in a vacuum.

She cites Realtor’s chief economist, Danielle Hale: ”A no-deal Brexit would probably hurt U.S. home sales in 2019. The slowdown in global economic growth centered in the U.K. and Europe would likely cause the U.S. economy to soften. That would lead to lower job growth and less income growth. Both are really important drivers for people looking to buy homes.”

While Hale says that slower economic growth in Britain, as well as the rest of Europe, may not have a huge impact, it would be noticeable, leading to effects like lower U.S. mortgage rates — something we may well refer to as a “good problem.”

“That’s because investors are typically spooked by instability,” says Trapasso. “So if there’s chaos in Britain, they’ll find safer places to park their money. U.S. Treasury bonds are a popular choice since they’re pretty darn stable. They’re also tied to mortgage interest rates, representing an inverse reflection of their strength.”

The general rule is that when bond prices go up, mortgage rates go down. If that happens because of Brexit, slowing U.S. real estate markets may benefit, driving more prospective American buyers into the arena. “If Brexit does hold mortgage rates down, it could help power some additional home sales this spring.”

Another potential consequence of the British mess? Some international investors may exit Britain to avoid the economic uncertainty—and head straight here. According to Lawrence Yun, NAR chief economist, Brits may find American real estate more appealing. ”The British will have a harder time buying property in Spain, Italy, and other parts of Europe,” he says. “They could look to the U.S. as an alternative destination to buy.”

Take heart, however. The likelihood of things changing near you is not increased unless you live the high life. Investors are primarily focused on luxury real estate in the biggest cities such as New York, Los Angeles, San Francisco, and Miami. According to the report, foreign buyers and recent immigrants make up only about 8% of U.S. existing-home sales (which exclude new construction).

Source: Realtor.com | TBWS

Rates Currently Trending: Neutral

Mortgage rates are trending sideways this morning.  Last week the MBS market improved by +10bps.  This caused rates to move sideways for the week.  Mortgage rate volatility was low for the week.
About the Author

Tim Morissette, also known in the community as Mr. Foothill Ranch, offers over 40 years of real estate experience which has given him an established reputation and unmatched market knowledge. He is joined by his wife, Michele, as they continue to offer personal service with an emphasis on achieving his clients' real estate goals. This unique combination of traits has led to his proven track record of referral and repeat business. This can be witnessed by the trust of homeowners in Foothill Ranch where he has sold twice as many homes and represented three times more buyers than the next-leading real estate agent for the last 20 years.