In spite of everybody and their brother having written about the United Kingdom’s vote on June 23rd to leave the European Union I believe I can provide a bit of clarity for my readers with some well-chosen, pithy comments. So here goes.
Make no mistake, Brexit will have enormous impact on the world economy and more importantly, from our point of view, on commercial real estate in the United States. But before I explain how it will affect U.S. CRE, let’s review the impact it is already having on the world stage, in the short few weeks since the Brits voted to leave the European Union.
Four Major Impacts on World Economy
- The value of the Sterling pound in relation to the U.S. dollar has dropped precipitously, losing 14% of its value.
- U.S. Treasuries rates have plummeted. The 10 year treasury rate traded at 1.67% before the vote and as of July 8th, it closed at 1.36%. This is the lowest rate on record!
- Bank stocks in the U.K., the E.U. and the U.S. have dropped about 36%, 25% and 8% respectively.
- The U.S. dollar in relation to a basket of other currencies continues to strengthen.
These are some of the unintended consequences of the Brexit vote. It will take years to fully feel the impact of this historic decision resulting in a lot of uncertainty which the markets of the world absolutely hate.
Other possible Brexit related carnage: (more…)