Rapid Reaction: Top Economists Weigh In On Brexit
The UK voted to break off its 40-year relationship with the EU, spurring the resignation of Prime Minister David Cameron and sending markets tumbling. Here's what top economists have to say about the decision.
Victor Calanog, Chief Economist, REIS
"Markets detest uncertainty, and if US CRE is perceived to be a relatively safe haven compared to options in the UK, then that will benefit demand for properties in the US in the near term. Currency fluctuations will mitigate that somewhat as the British pound’s decline will render UK properties more affordable, but I suspect most investors will want to wait and see how the UK and the EU end up stumbling through the unfolding schism.
The slower moving story that may undermine these near-term predictions is how the cloud of populist uncertainty is perceived by the market. If Britons vote to leave the EU, what will Americans do this November? Does that mean more or less uncertainty for the US and the EU area as a whole? There are other options out there, and there is early evidence that countries like Japan—however moribund their economy has been—are benefiting from the turmoil of Brexit more than the US (the Japanese yen is up strongly against the US dollar right now)."
Lawrence Yun, Chief Economist, NAR
“[The] isolationist move will cause many wealthy foreigners to consider selling their properties in UK, especially in London as it becomes a less attractive place to set up offices to conduct global business. Therefore, demand for US real estate could rise if global investors view America as open to global business.
But overall, global economy and job creations could modestly slow down with more frictions in place to do commerce. The British economy will be disrupted and hence we should expect fewer Brits able to buy in the US.”
Jack Kern, Director of Research and Publications - Yardi
"The result of the Brexit referendum and the resignation of David Cameron is the black swan event no one wanted. The turmoil that this is causing already, along with the implicit uncertainty in policy shifts, is creating catastrophic consequences in the UK economy that will affect the US and global markets. It will take a while for the full effects to bubble through but the impact of the decision is being seen first in financial markets and will soon affect trade and relations with other countries globally. It remains to be seen if this is the first step in the dissolution of the Brussels-led EU consortium and triggers other countries opting out. Commercial real estate firms and financial partners will now begin to scramble to implement their zero day event planning and it will, for the sheer force of demand, push pricing and cap rates in unforeseen ways. I am anticipating that this instability will remain mostly within the UK for now but the collateral impact will start to appear in the US before year-end. That, coupled with our election cycle, along with their newly formed government will likely see a lack of cohesiveness for some time to come."
Rajeev Dhawan, Director, Economic Forecasting Center, Georgia State University
"Here's the thing: the way the market is reacting is a 'first-order' impact, which means it is overreacting.
The market is reacting as if a company failed, like the Lehman failure. The Lehman failure was a symbol of a lack of global demand. [Brexit] is just a change on paper—nothing has happened on trade or anything. Everything has to be worked out, it's not as if tomorrow the trade is going to stop. But the market is reacting as if there are going to be big roadblocks.
Of course, the UK will probably enter into a recession, but the market is overestimating it. And the reason the UK will enter into a recession is not because the pound is very weak or something, it's because the corporate sector will pull back on the investments. But the way the pound has gone down is actually a buying opportunity in the UK—everything is suddenly 10% cheaper.
The long term will depend on who comes after Cameron, how they negotiate the exit—those are slow-burning issues. But the market is acting as if this is an immediate crisis."
Jamie Woodwell, VP of Commercial Real Estate Research, Mortgage Bankers Association
"Brexit is driving the latest rounds of both market volatility and 'lower-longer' interest rates and yields. Given the timetable for the exit, it is likely to keep both around for at least the near term. For the commercial real estate market, investors’ flight to the quality of US Treasuries will place continued downward pressure on mortgage rates and could help keep cap rates 'lower longer' as well.”
Christopher Thornberg, Founding Partner, Beacon Economics
"The Brexit has occurred despite the polling that had suggested otherwise, and this has led to the dive in the markets seen this morning. In my opinion this is more reflective of how disconnected the markets are from economic fundamentals. If you take a step back from the noise, you will quickly realize that this result is largely irrelevant to our economy given that the political and economic relationship between the UK and the EU will have little impact on the true drivers of our economy such as real estate, consumer spending and the labor markets. As for the UK this is a bit of a mess. But remember that all this vote means is that the old set of rules that govern the relationship between the UK and the EU are gone—but a new set of rules will have to be put into place. If the new set of rules is similar to the old set—no difference. If not then there will be a transition effects, but not much more other than a small drag on long run growth."
Spencer Levy, Head of Research, The Americas, CBRE
“CBRE expects minimal impact from the Brexit decision on US property market fundamentals. In the short term, US gateway markets will likely be viewed with enhanced status as havens for global capital, but heightened uncertainty will carry risks for both investor sentiment and the real economy. The UK, especially London, will continue to remain attractive for global investors driven by its inherent advantages, including transparency, political stability and market liquidity. A decline in the value of the sterling could also be a catalyst for increased foreign investment in the UK.”
Robert Bach, Director of Research – Americas, Newmark Grubb Knight Frank
"The long-term ramifications of the Brexit vote are unknown at this point. Among the key concerns: the viability of the EU, the euro and even the UK, if Scotland decides to hold another referendum. It will be a messy divorce, impacting global trade, geopolitical security, financial stability and national and global economies. In the short term, one of the first casualties could be business capital spending, due to heightened uncertainty. Businesses may delay investing, hiring and expanding until some of the fog lifts around the outcome.
In the US, business capex is already in decline, falling by 6.2% in Q1 2016 and by 2.1% in Q4 2015, the first time it has declined for two consecutive quarters since the recession. The monthly measure of business capex is also weak, dropping 0.7% in May and 0.4% in April. The obvious reason is weak corporate profits, but uncertainty surrounding the November elections—and now Brexit—won’t help. Business capex accounts for 13% of US GDP, while consumer spending accounts for about 68%. So if consumers are happy, the economy should power through the headwinds.
For commercial real estate, weak capex and other negative impacts from Brexit could affect leasing activity. On the positive side, the global turmoil could drive more offshore investors into US property. The Fed may not raise interest rates again for a long time, which could benefit real estate capital markets. New York may regain the title of undisputed global financial capital as some of London’s financial business moves to Europe."