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How much can an overseas referendum affect the US housing market? In the case of Brexit, not a whole lot — at least according to Capital Economics.
The economic research firm says Brexit, which saw the UK vote to leave the European Union, will have only a “limited” impact on stateside residential real estate.
To what extent Brexit affects the US housing market comes down to mortgage market conditions and their impact on the national economy, says Matthew Pointon, a property economist with Capital Economics.
“Looking at the former, mortgage rates may be a bit lower for a bit longer,” writes Pointon in the firm’s latest US Housing Market Update.
He mentions how Janet Yellen, chair of the Federal Reserve, which sets the federal fund rate affecting mortgage rates, has previously called attention to the risks associated with Brexit.
Earlier this month Yellen said Brexit “could have consequences in turn for the US economic outlook,” reports CNBC.
Nonetheless, Capital Economics is still calling for the Federal Reserve to hikes rates twice this year.
“Elevated uncertainty will also increase banks’ caution, which would slow the current easing in mortgage lending standards. Overall, therefore, there seems limited scope for Brexit to trigger a sharp drop in mortgage interest rates,” says Pointon.
Concerning the broader US economy, Pointon expressed Capital Economics’ doubt that an economic slowdown will hit and cool housing demand.
“Admittedly, if Brexit leads to slower job creation and income growth, then demand will ease. But the chance of that happening seems low,” he continues.
Capital Economics points out how the US and UK economies are not closely linked. Of all US exports, the UK makes up just 4 percent, according to the report.
“Our view that housing demand will rise slowly but steadily over the next couple of years is also unchanged,” says Pointon.
Capital Economics forecast for US home prices to climb 6 percent this year and 4 percent in 2017 remains unchanged amid low supply, the economist says.
“After all, for the average American thinking about buying a home, the outcome of a referendum taking place across the Atlantic is not going to influence their decision about what or when to buy,” he adds.