The news media has been filled with ongoing speculation about how the British departure from the European Union will affect U.S. markets—and in the back of your head, you may be wondering if there will be any implications for Arizona or the Phoenix real estate market. For now, everything is just that—speculation—and it’s worth noting that such a significant event is not an instant process. So far, the only event was a vote, and transitioning to independence will take years.
While the United Kingdom is several time zones away, they do play an important role in the Arizona’s economy. The most recent US Department of Commerce figures listed them as the state’s fourth-largest export trade partner and seventh-largest import partner.
The stock and bond markets, as always, reacted swiftly to the news, but the real estate impact will play out on a longer timeline, since it takes months from a sales decision to the actual close of escrow. For Brexit to truly influence US real estate prices, it would require emotional and financial effects extending for longer than a season.
Where Brexit Stands Now
The initial financial moves included a hold on interest rate raises by the US Federal Reserve. Perhaps not surprisingly, the US dollar gained value against the British pound (which fell to its lowest levels in 30 years). We currently have a favorable home buying and refinancing climates, since 30-year fixed-rate mortgages remain near record lows.
Of the basic segments within commercial real estate, office space is likely to see the biggest impact. Although cap rates are at historic lows, they’re still a safe and less-volatile option for foreign capital. Foreign investors had already been shifting into the U.S. market for the past year, and the Brexit campaign and vote perpetuated that trend. Arizona and the Phoenix real estate market, as secondary markets, probably won’t be affected in the same way as major gateway cities that include New York, Los Angeles, San Francisco, and Chicago.
The luxury market is something to keep an eye on, because buyers in that category are less concerned with affordability and secure employment than stock market results. When considering whether to buy or sell real estate, corporate executives, business owners, foreign entities, and wealthy retirees are influenced above all by their projected business results and investment account levels.
Prognosticating on the Phoenix Real Estate Market
In the end, Brexit’s impact on the U.S. residential market and the Phoenix metro area real estate market is simply unknown. Of course, that doesn’t mean market observers are unwilling to prognosticate. Some believe that home prices could go higher, given low interest rates and their positive influence on buying power. It’s important to note, however, that appreciation depends on both supply and demand. An increase in supply from new home listings or construction could cause appreciation rates to stagnate or decline.
Residential real estate is also influenced by employment and income levels. Because Arizona’s economy depends significantly on tourism, European economic weakness is a negative—which could be accelerated if additional countries chose to leave the European Union. It would also be damaging if UK- or EU-based corporations with a US presence started laying off or decreasing salaries—making it difficult or impossible for workers to get loans, and thereby increasing supply and reducing demand.
Beyond all of the speculation, Phoenix still ranks among the strongest US metro areas when it comes to job growth and GDP so far in 2016. Whether Brexit sends ripples from across the pond into the Sonoran desert, it’s a matter of waiting and seeing.