Brexit Sees International Effect, Cutting Into California Commodity Exports

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The Grubb Company explores Brexit’s international effects on California’s housing market.

Time will tell whether Britain’s vote to leave the European Union was the right choice. In the meantime, the pound is at its lowest level in decades and international markets have been rattled. One of those markets is California.

By recent figures, California is reflected as the world’s sixth-largest economy. A strengthening of the dollar could cut into California commodity exports such as rice, almonds and other crops, which have already been struggling overseas.

“No one in California can be immune from dramatic changes in the international economic structure,” said Allan Zaremberg, president of the California Chamber of Commerce.

U.S. real estate is worth approximately $22 trillion, with 2-3 percent controlled by foreign investors. High net-worth real estate investors, both individual and institutional, have been eyeing New York, San Francisco and other gateway U.S. cities as safe havens. They’ve been spooked by uncertainty that has crept into the London market in the last year because of both Brexit and recent policy changes involving visa approvals and real estate taxes.

Lawrence Yun, chief economist at the National Association of Realtors, confirms that the reduction in international trade and negative impact on economic expansion for both Britain and the EU from Brexit will trickle down to other countries. He says that cities like Washington, Miami, Los Angeles and San Francisco are most likely to benefit, unless foreign investors see the bigger markets as overbought.

“The mortgage rate here in the U.S. could begin to decline because of lower GDP [gross domestic product] expansion. That always benefits the housing market,” Yun said.

He went on to say that competition from foreign buyers with all cash offers will further hinder first-time buyers from getting their home.

Home loan rates are tied to a type of bond called Mortgage Backed Securities. When bond prices improve, home loan rates tend to improve as well, like they have in recent weeks; the reverse is also true. Markets around the world will likely be volatile for some time as they digest Brexit, with bonds and home loan rates continuing to benefit from the global uncertainty. Roger Smith, senior loan advisor at LaSalle Mortgage Services, said it’s too early for consensus as to the effects of Brexit, but there is definitely potential for impact.

“Move-up or first-time buyers could see the buying power of their down payments reduced. The positive is that long-term rates will stay very low. The negative is the wealth aspect; at the very least, growth is going to remain flat,” Smith said.

There was an expectation that the Federal Reserve (Fed) was going to increase interest rates at their next meeting. Smith said he thinks that a rate hike is highly unlikely, but sees an upside in refinance opportunities for many homeowners.

Zach Griffin, another senior LaSalle advisor, concurs, adding “The speculation was that the Fed was going to increase rates although they kept pushing it out. I don’t know that the Brexit was the only reason, as the employment report was also a part of that, but this probably seals the deal. I don’t see an increase before the end of the year.”

Griffin continued with a smirk: “On the other hand, anyone who thinks they can predict what the Fed is going to do...”

So, at the end of the day, we’re going to have to wait to see how Brexit affects global and local markets and economies. No one expects a recession, but there will almost certainly be an adverse effect on U.S. exports, confidence might flag for consumers and investors, and the demand for Bay Area homes continues to outpace inventory.

Please call or email with comments or questions about this article, which is for informational purposes only and should not be construed as legal advice. Please contact an attorney to determine the best way to hold title personally.

For more information about The Grubb Company, please visit http://www.grubbco.com.

About the company:
The Grubb Company is a full-service real estate firm, offering their clients a smooth and professional real estate experience. With more than 44 years in the business, The Grubb Company knows that a high level of service ensures the satisfaction of their clients. They have a foundation of discipline, accountability and teamwork that sets them apart from other real estate firms in the area. The Grubb Company is committed to providing their clients with the best agents, the best service and the best houses around. To learn more, visit their website at http://www.grubbco.com/.

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Susan Kline