The hottest topic in the business world over the past two weeks has been the events happening across the Atlantic in the United Kingdom. On June 23rd, the citizens of the UK voted to leave the European Union sending shock waves throughout Europe and global market places. Being that we are a global economy and California is one of the largest international economies in the world, we thought we would dive into the effects of the Brexit on our local South Bay real estate market.
Although it has only been two weeks since the vote and there are still many uncertainties as to the fall out of the Brexit, three macro-economic factors are coming into play…
Mortgage Rates are Falling
During uncertain and volatile times, global investors flock to “safe” U.S. government bonds. The 10-year Treasury note hit an all-time low on Tuesday which is good news for mortgage rates. Mortgage-backed securities historically trend very closely to the 10-year and lag by a few weeks. According to Bankrate via CNBC, 30-year fixed mortgage rates are around 3.6%, only a hair shy of record lows.
Foreign Buyer Interest is Rising
Lawrence Yun, chief economist of the National Association of Realtors said: “…with economic instability and political turmoil outside of the U.S. likely to persist, the world view of American real estate as a safe investment should keep demand firm even as pressures from a stronger dollar continue to weigh down on affordability.” Experts believe that foreign investors will favor the safety of American real estate, especially in major cities like New York and Los Angeles.
Stock Market Resilience
The stock market has been surprisingly resilient once the dust settled from the surprise result of the Brexit vote. As of the close Wednesday, the S&P 500 Index was within only a few points of making back all of its loses from the Brexit volatility. Jonathan Smoke, chief economist at Realtor.com said: “According to the 2015 Home Buyer and Seller Profile Report from NAR, 20 percent of last year’s buyers sold stocks or used retirement funds…Declines in portfolios will likely disrupt sales and closings, especially at higher price points as long as stocks decline. If we see stock indices recover, that effect should diminish.”
These of course are all favorable macro-economic factors that cannot hurt our local real estate market, in fact, they are quite positive. But as many real estate professionals like to say, “all real estate markets are local,” and the South Bay is certainly as local as it gets. Currently our brokerage is working with many buyers and sellers throughout the Beach Cities and greater Los Angeles, and our most interesting finding on the Brexit was the relative silence regarding the matter. In the last two weeks, not one client whether it be buyer, seller, or clients from cooperating brokerages, has brought up the Brexit as a concern. We have put properties in escrow during this time, toured properties, made offers, etc. and the uncertainty in Europe has not affected one real estate decision.
We do not have any hard data, but more of a “feel” of what is going on locally. The bottom line is that it is business as usual in the South Bay.
And although the macro-economic factors are favorable, do they really change anything in our market? Even with lower mortgage rates, Zillow’s Vice President for mortgages said, “if you couldn’t afford a house a few weeks ago, you still can’t.” And with foreign buyer interest rising, or at least looking to invest more in American real estate, NAR reported that last year foreign buyers only control about 2% to 3% of all U.S. real estate. Lastly, does a swing in the stock market by 5% really affect property sales here? Highly unlikely in our minds.
For us, it is all about the stability of local employment and the stock market. As long as Los Angeles County continues to grow employment (L.A. County broke its December 2007 employment high this past April by 46,800 jobs), and the Europe does not bring the global economy and equities into a slow moving recession, then we feel the South Bay real estate market will continue to be a stable and growing market.
It’s Your South Bay. Own It.
Richard Haynes
DRE: 01779425
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The Richard Haynes Real Estate ShowA leader in South Bay real estate for the better part of a decade, Richard thrives as an advisor to his clients with over $248 million in sales as a broker or investment principal at his boutique agency, Haynes. Richard is known for his keen local market insights which have been featured in the L.A. Times, The Street, and Forbes, along with his weekly South Bay real estate blog. [read more]