BREXIT’s Silver Lining
It’s a complicated time for the world economy, and particularly so for the largest economic powerhouse in the world: the United States. Globalization ensures that while major economic events may occur on other continents, their impacts will be felt across the globe. The American economy is experiencing that very phenomenon in the wake of the United Kingdom’s recent decision to leave the European Union, along with other international and domestic current events. The cumulative effect of those events on the residential construction industry is yet to be seen, but we can make a few predictions based on what is occurring thus far.
The immediate reaction of world and US markets to the BREXIT vote was most noticeable in the sharp downward trend on Wall Street in the days after the decision. That trend has created a sense of worldwide economic uncertainty that most economists fear could lead to further complications. When it comes to our industry in particular, however, it’s not all bad news. In fact, there are several positive developments that are occurring in residential construction as a direct result of the BREXIT vote and the uncertainty it has created.
The most obvious benefit to our industry is the Federal Reserve’s decision not to raise mortgage interest rates in June, as it was widely expected to do. Indeed, there is speculation that the UK’s decision will push interest rates even lower, thus further incentivizing Americans to buy homes in an effort to take advantage of such low rates. There are indications that this trend has already begun, in fact, with lenders reporting increased interest in home loans in the days since the BREXIT vote.
Another positive outcome could be an influx of foreign buyers or investors who are now looking to vacate the United Kingdom. While market instability could temporarily diminish investors’ eagerness to part with their cash, a market highlighted by low interest rates is an attractive alternative to those wishing to put the UK market in their rearview.
Such beneficial impacts notwithstanding, the situation in the UK – combined with uncertainty in the United States over the upcoming election and continued sluggish economic growth overall – will undoubtedly present challenges for our industry as we move into the second half of 2016. If those same investors choose to slow their buying, then we could see a reduction in home prices in some markets. And while lower prices would also encourage buyers, it could create more uncertainty for the industry as a whole.
The residential construction industry has been remarkably resilient by outpacing growth of the overall economy for the last several quarters. How our industry – and your company – reacts to global uncertainty will help determine if we can continue that trend. With this particular uncertainty comes opportunity in the form of lower interest rates, cheaper loans, and more incentive for building homes. If your organization partners with professionals like Schaffer Associates who understand the industry and the talent landscape, together we can navigate the choppy waters of BREXIT and other events that are shaping our economy. We hope you’ll call us today.
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