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    BREXIT: Why Stay, Why Leave, and How does it impact the US Real Estate Market?

    Arguments For and Against the BREXIT:

     

    Reasons for leaving:

    • The EU threatens Britain’s Sovereignty – supports of this viewpoint reference the trend of an increase in EU authority over the past few decades. For example, in matters of competition policy, agriculture, and copyright and patent law, EU rules overrule national laws.
    • The EU is able to impose regulations on its members, some of which BREXIT supporters claim are overly burdensome and cost the British economy up to $880 million a week (though this figure is disputed).
    • Some supporting the BREXIT desire immigration reform. EU law guarantees that citizens of one EU country have the right to travel, live, and work in any other EU country. After the financial crisis of 2008, the Eurozone has struggled economically, and workers from other countries have poured into the UK looking for work. Supporters of this argument claim that this has undercut the native working population.

    Reasons for staying:

    • The EU is in a stronger position to negotiate trade deals with non-EU countries than the UK on its own.
    • Some manufacturers have threatened to leave the UK if it is outside of the EU.
    • The UK risks losing foreign direct investment from non-EU countries. Additionally, being a part of the EU makes it easier for companies in the UK to operate due to a lack of capital restrictions and a single legal framework across member countries.
    • Supporters of staying quote studies that show that EU migrants are net contributors to UK public finances and that there is no evidence that immigrants take jobs away from UK-born workers.

     

    How The BREXIT will impact the US Economy and Real Estate Market:

    • It is more likely that the FED will delay raising interest rates due to the ensuing uncertainty in financial markets.
    • The US has and will continue to see an influx of foreign capital. US treasury bonds are considered very “safe”. It is expected that foreign currencies will become more volatile, increasing the demand for US dollars. This will cause the dollar to appreciate, making US goods less affordable and tourism in the US less attractive. However, this will also decrease long-term interest rates, which are expected to be low in the foreseeable future.
    • Historically low interest rates may drive up sales in the US, including on the residential side, however, uncertainty in financial markets also tends to hamper long-term investments.
    • The desire for a safe haven may drive foreign investors to purchase more US real estate. This is predicted to largely impact cities like New York, Los Angeles, San Francisco, and Chicago. It is uncertain if this will affect first-time homebuyers. Some claim that the increase in demand will largely be in the luxury home market. However, others claim that an influx of foreign buyers could trickle down into the lower-end of the market and first-time buyers, who usually need a mortgage, will have a hard time competing with all-cash foreign buyers.

     

    In Summary, opinions about the BREXIT are varied amongst professions, ages, and nationalities (click here for graphics depicting voter characteristics). The US will likely face increased volatility in financial markets, which would hamper investments in the short and long run investment. However, low interest rates may increase investment, especially in commercial and residential real estate.

     

    Sources:

    http://www.vox.com/2016/6/22/11992106/brexit-arguments

    http://uk.businessinsider.com/take-a-look-at-all-the-major-economic-arguments-for-and-against-britain-leaving-the-eu-hsbc-note-2015-5?IR=T

    (The link directly above is an informative infographic that depicts reasons for staying and leaving if you would like to learn more).

    http://realtormag.realtor.org/daily-news/2016/06/24/brexit-could-give-us-real-estate-brief-boost

    http://www.ibtimes.com/brexit-effect-us-real-estate-why-millennials-may-be-priced-out-some-markets-2383618

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