As by now thoroughly reported in the global financial press, British citizens voted last week to “exit” the EU. The political significance of Brexit vote will likely be profound, but the economic consequences are far less certain. My colleagues in the U.K. issued a statement on Friday highlighting the uncertainties for the U.K. at this early date. My goal here is to present my own views and insights, focusing on potential impacts on the U.S. economy and property markets.
Beyond the immediate hit to financial markets, the direct impacts on the actual economy should be limited, even in the U.K., but especially for the U.S. The greater danger lies in the intermediate term as the 70-year consensus over the benefits of trade liberalization may be unraveling, to the detriment of global trade and ultimately economic growth, if this vote serves as a harbinger of worldwide shifts to isolationism and protectionism.
For the U.S. property markets, the most likely outcomes include the following:
- Another Fed hike is now off the table for this summer and maybe for the rest of the year, but any hikes this fall will be “data dependent,” as the Fed waits for signs of renewed job growth and inflation while gauging potential financial market contagion related to Brexit.
- The U.S. dollar should strengthen, which may well hit U.S. exports and manufacturing, but should prove positive for U.S. property asset values once the immediate investor anxieties fade.
- Overall property transaction volumes – already down significantly from 2015 – can be expected to ease further in the second half of the year, though still remain at healthy levels relative to historical averages. However, U.S. property markets could benefit from potential capital flight out of Britain and Europe generally.
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Andrew J. Nelson is Chief Economist for Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.