Investor Intel: Brexit Edition
The looming question on everyone’s mind this week has been whether or not the UK will exit the European Union. Economists and commentators across the globe have been speculating about the potential effects of the Brexit, which have ranged from market Armageddon to grand overstatement.
While markets had been jittery leading up to the vote, many housing economists shared potential bright spots for the market.
For starters, the U.S. market has become even more attractive to foreign investors. Lawrence Yun, chief economist at the National Association of Realtors, estimated that foreigners invested $80 billion in U.S. real estate last year. Overall, U.S. real estate is worth approximately $22 trillion and about 2 to 3 percent is controlled by foreign investors.
In terms of specific markets, Yun said in addition to New York, cities like Washington, Miami, Los Angeles and San Francisco are most likely to benefit. The Tampa Bay area in Florida, Chicago and Dallas are also potential beneficiaries. Smaller metro areas are unlikely to see much impact unless foreign investors see the bigger markets as overbought, Yun said.
Nationwide Chief Economist David Berson echoed these sentiments. “In the short run, financial markets could panic simply because it’s not happened before and so we could see a flight to safety. For the real economy, what it means for jobs and income, I think it’s going to be very small here.”
Berson also noted strong home sales. Last month, existing home sales reached an annualized rate of 5.53 million units, a nine year high, according to data from the National Association of Realtors.
“I think we’ve got a lot more room to go,” Berson said. “There’s room for the housing market to expand further.” For more from Berson, check out this interview on Fox.
Recent housing data supports Berson’s sentiments. Sales of existing homes rose to their highest level in more than nine years and prices achieved a new high in May, underscoring strong demand amid steady job creation and low interest rates.
Consumer credit also appears to be recovering, with the percentage of Americans with subprime credit scores falling to the lowest level in more than a decade. This is good news, and perhaps this improvement is partially reflected in the falling percentage of cash sales.
According a recent report from CoreLogic, cash sales made up 33 percent of total home sales in March 2016, a decrease of 2.4 percentage points annually. If cash sales continue to fall at the same rate as March, they could hit the pre-crisis level by mid-2018. While the overall figure is promising, there are still some states with significant percentages of cash sales. Alabama reported the largest percentage at 49.8 percent. New York came in second at 47.5 percent, followed by Florida at 45.9 percent, Michigan at 41.8 percent and Indiana at 41 percent.
We’re in the midst of a steamy summer indeed.
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