With the stock market continuing its tizzy over the U.K. Brexit vote, what repercussions could this have for the California real estate market and mortgage-related investments such as the Pacific Private Money Fund?
According to Fortune Magazine:
First, one of the most immediate effects of the move was to send yields on U.S. government debt tumbling, with the yield on the 10-year Treasury falling from 1.75% to a low of 1.43% in early morning trading Friday. That’s going to put downward pressure on mortgage rates. All else equal, lower mortgage rates mean higher home prices because low rates enable homebuyers to afford a more expensive home with the same income.
Furthermore, some analysts believe that Britain’s exit from the EU could lead to added demand for American real estate, especially in major cities like New York and Los Angeles. Investors are primed to look at the U.S. real estate market as a reasonable alternative to the London market, which has long been a haven for the global rich to stow their excess wealth. With uncertainty over what the rules will be regarding foreign investment in a post-Brexit world, many of these investors will be looking to reduce their exposure to the U.K, with the U.S. market set to benefit.
If you live in a major U.S. economic center, this means that it’s reasonable to expect higher real estate prices, and that goes for commercial real estate as well as residential.
And, the International Business Times writes:
With the Brexit vote, high-net-worth real estate investors — both individual and institutional — are eyeing New York and other gateway U.S. cities as safe havens.
Many of you may have recently read that the high end of the Bay Area real estate market has been cooling. Brexit could result in an increase in demand for those high-end properties as investment havens.
So we know what the Brexit vote is doing to stock market indexes and bond yields right now, but what about mortgage-related investments like the Pacific Private Money Fund?
Well, the real estate market is not immune to a huge drop in stock prices, as many hold their down payments and savings in the stock market and a significant drop may stall purchase decisions, however, we don’t expect to see a change in demand for our loan products. We are a Bay Area company serving largely Bay Area demand, and real estate transactions will continue in a marketplace where demand outstrips supply. People come to us for a myriad of reason – speed oftentimes being the prime motivator – and the increased difficulty of obtaining conventional financing thanks to broad regulatory reforms won’t change in the light of Brexit. Hence we believe our business model remains sound, demand for our loans will remain consistent, and that the safety and security features of our non-levered, conservative-style mortgage fund means that our investors will continue to enjoy high, above market returns (currently approx. 8%) for the foreseeable future.