If you’ve been paying attention to the news (or social media for that matter) over the last 24 hours, then you’re probably aware of Brexit (or Britain’s Exit from the European Union) and unless you’re an international politics junkie like I am you probably haven’t given it much thought. There’s a whole ocean separating the United States and Europe, right? It couldn’t possibly mean anything for us — not when we’re dealing with our own electoral circus, culminating in what is sure to be an historic election. Brexit, however, will actually have significant effects on the American financial and real estate markets. The financial market is already in an upheaval, as the Dow Jones Industrial Average dropped by 600 points by the end of trading today (thankfully, we’re going into the weekend, so the market will be closed until Monday and hopefully, cooler heads will prevail when it opens again next week). Now that I’ve got your attention, there are a few things you should be thinking about.
What is the European Union?
In short, the European Union (EU) is an organization of 28 member countries that have standardized the way Europeans live their lives. Anyone residing in one of these states, has the right to live and work in any of the other states, which is something many people have done over the last 60 years since the EU was first chartered. This is actually one of the reasons Britons decided to break away from the EU (more conservative members of British society –i.e. the 65 and older crowd, for the most part–aren’t too keen on the many Eastern Europeans, particularly the Polish and Lithuanians, immigrating to England). The EU has also standardized currency across their member states — although the UK never switched from the Pound to the Euro. Over the last several years the stability of the European Union has come into question, most notably after the debt crisis in Greece following the economic collapse in 2008.
What is Brexit?
The story of Brexit starts two years ago when many conservative Britons worried about the Eurozone Crisis began publicly calling for a withdrawal from the EU. At the time, Prime Minister David Cameron, fearing losing his re-election bid, promised to put the decision to the vote, even though he was completely against the idea. Fast forward to yesterday when Cameron made good on his promise and the majority of the vote went towards leaving. Less than 24 hours later, Cameron has announced his resignation and both Scotland and Northern Ireland are considering leaving the United Kingdom and joining the EU on their own.
What Does Any of This Mean for the Real Estate Market?
Depending on which experts you ask, Brexit is either going to drastically increase the amount of foreign investors in American real estate or it isn’t going to change anything at all. According to Fortune, an increase in foreign investors will also mean an increase in home prices as Americans looking to buy houses will have to fight off these newcomers, looking to avoid the fallout of Brexit on the British economy. Realtor, however, is on the fence. It acknowledges the idea that housing prices may rise,especially since many home buyers in the United States need a mortgage to make their purchase and the types of foreign investors looking for real estate here would have cash on hand, which is more appealing to home sellers. They’re cautious, however, and speculate that for the most part anyone looking to American real estate deals will be looking toward luxury real estate and most likely wouldn’t compete with first time home buyers. They do agree that whatever kind of investment they’re looking for, they’ll most likely be looking at the already expensive metropolises of New York, Los Angeles, and San Francisco. Even if it doesn’t have a big effect on the rest of the country, it could spell trouble for Bay Area families.
For now, we’re mostly in a wait and see pattern. Because of the EU’s withdrawal protocols nothing is going to happen overnight. The UK still has to make a formal announcement to the EU and once they’ve done that, it is then up to the EU to negotiate a new treaty with them. According to some sources the whole process could take about two years.