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Luxury Brokers Brace for 'Brexit' Fallout to Reach Across the Pond
By Andrew King
As anyone who does business in the upper end of the luxury markets can tell you, real estate trends are very much about confidence. After all, those who buy and sell $10 million-plus homes are a pretty confident bunch.
The truth is they often don’t really need the home. From New York City to South Florida and California, brokers across America are buying and selling second and third homes for their clients who reside in multiple places, some as far away as Russia, China and Europe. The purchase is just another asset in their fortune, and they’re more likely to worry about foreign currencies than local school districts.
Brokers say this is the mindset of those who are most likely to fear the recent so-called “Brexit,” the democratic vote in Great Britain to leave the European Union. The move was widely unexpected – as demonstrated by the 600-point plunge in the Dow Jones Industrial Average hours after the vote was tallied – and it stems from a similar sense of nationalism that has been gaining steam in this year’s presidential election here in the United States.
“I see more political fallout in the near future than economic fallout,” says Louise Phillips Forbes, a broker with Halstead Property’s esteemed Park Avenue office in Manhattan.
British Prime Minister David Cameron instantly announced he would be resigning because of the vote, and Republican Nominee Donald Trump doubled-down on his anti-establishment rhetoric endorsing England’s decision to leave because it would mean they’re no longer beholden to the trade agreements and immigration policies of the E.U. Indeed, the political fallout could spread to other countries, and the entire international trade system could be at risk – especially if more Brexit-type scenarios were to happen within other key countries.
“The fallout over the next two years as the trade agreements are worked out is going to bottleneck the growth and it will have some cause and effect,” Phillips Forbes explains. “Corporations might wait to expand in Europe, particularly in England.”
She says this bottleneck just adds to the uncertainty that’s been slowing down the Northeast luxury market lately. Over the past year, catalysts such as the Chinese stock market collapse and the rise of anti-establishment movements on both sides of the American electorate have fueled a level of uncertainty that is giving many luxury buyers pause. The current sentiment tends to be, “I’d better wait to see how this all plays out before I pull the trigger on that second or third house I was considering.”
“There is an elongation of the sell cycle, particularly in Manhattan,” Phillips Forbes reports. “It’s a pause button on the higher end of the luxury market.”
For brokers, the best way to insulate your company from this trend could be to develop a strategic hedge, Phillips Forbes suggests. About half of her business is high-end clients and the rest is middle-market, so when the one half slows, the other half stabilizes her overall cash flow.
Additionally, there is something of an economic stimulus coming from the Brexit. As trillions of dollars evaporated instantly around the globe, the British pound took one of the biggest hits. Since currencies are largely valued in relation to each other, that essentially makes the American dollar even stronger – reducing the need for the Federal Reserve to raise interest rates and further empowering most homebuyers who are shopping for mortgages.
Pam O’Connor is the CEO of Leading Real Estate Companies of the World, a Chicago-based network that represents brokerages around the globe. She says one of her members in England has 50 offices and only one of its clients had put their home on the market as a direct result of the Brexit vote. The main impact, she expects, will be more borrowing power for first-time American homebuyers.
“It’s going to be tough for the Fed to raise interest rates now (and) that’s huge for first-time buyers,” says O’Connor. “They are the most challenging part of the market – when they can’t buy, the move-up buyer can't sell.”
Hopefully, she adds, sustaining the near-record-low rates that banks have been offering could improve that trend and also allow more people to refinance their existing homes.
There’s also an upside to all of the international uncertainty, she suggests, because U.S. housing becomes a safe haven compared to other asset classes. “We’ve had a lot of foreign investor money coming into the U.S. real estate market because it’s the safest place to put your money … when you come from unstable political environments,” says O’Connor.
According to Peter Turtzo, senior vice president of international operations for Berkshire Hathaway HomeServices, the Brexit will have little to no impact on the brand’s plans for global expansion.
“The Brexit is a new fact of life,” says Turtzo. “It’s not something that is going to happen tomorrow—in all likelihood, it will be a two-year process. It presents new opportunities for us because in the UK, for example, a global brand is going to be important to enable the connection to more easily be made. Berkshire Hathaway HomeServices provides that for them.”
O’Connor advises her agents to touch base with their clients during scary moments like the Brexit and make sure they’re not thinking of doing anything rash. She says it is important for brokers to maintain perspective and look at the larger trends and economic themes.
“How we recovered in the Great Recession is remarkable,” O’Connor says. “I don’t see Doomsday coming. Not reacting to the Brexit is probably the healthiest thing. I look at my home as a user-asset, not a stock.”
Andrew King is an award-winning journalist with 15 years of experience with the Gannett newspaper company, appearing in The Journal News (Westchester, NY), Asbury Park Press and USA Today. He also contributes to The Real Deal, TheLadders.com and TechPageOne.com.