Do Geopolitical Events Influence the Housing Market?

Fleming: “What happens outside our borders matters to our own success. We cannot prevent the trends of economic globalization and generally are one of its biggest beneficiaries.”

IRVINE, CA—Events like an affirmative “ Brexit ” vote (scheduled for today) can create economic uncertainty that causes the financial markets to react by fleeing to safety, First American Financial Corp. ‘s chief economist Mark Fleming tells GlobeSt.com. In a recent report from the firm, Fleming said, “This week, the yield on the 10-year Treasury note tumbled further to 1.59% after the June meeting of the Federal Open Market Committee and the committee’s decision not to raise the Federal Funds Rate . This leaves fewer opportunities this year for a rate hike, although, as I wrote in my blog post last week, this will have little impact on the health of the housing market and housing affordability . In fact, FOMC decisions are currently non-event events for the housing market. In the coming months, global uncertainty due to events like ‘Brexit’ or other forms of geo-political unrest may have more influence on mortgage rates than any actions taken by the Fed.” We spoke exclusively with Fleming about geopolitical events like Brexit and their impact on the housing market. GlobeSt.com: Which geopolitical events could influence the housing market? Fleming: Any events that cause financial markets to react—in particular, reacting by “fleeing to safety.” One example could be the economic uncertainty caused by an affirmative “Brexit” vote on Thursday. GlobeSt.com: How could these events influence the market? Fleming: Uncertainty can cause investors in European bond markets to sell off their bonds and buy American Treasury bonds. This flight to safety often occurs on negative economic news events. This increased demand drives up the price one is willing to pay for specific maturities of bonds (one-, five- and 10-year maturities, for example) and therefore reduces the return or yield. Because mortgage rates tend to move with the 10-year Treasury bond, a flight to safety causes the mortgage rate to fall. We actually saw that happening just this past week. GlobeSt.com: What should economists be looking for that may not be obvious when considering which factors could influence the market? Fleming: Of course, there is significant risk to the US economy directly from geopolitical events because if important trading partners like the European Union experience a negative economic shock, that hurts their demand for our goods. That is not to be discounted, even though we experience a financial “Brexit benefit” in the housing market. GlobeSt.com: What else should our readers know about geopolitical events and the housing market? Fleming: We are ever increasingly part of a global economy with strong and complex interdependencies among countries. What happens outside our borders matters to our own success. We cannot prevent the trends of economic globalization and generally are one of its biggest beneficiaries. With developers leveraging development and redevelopment opportunities across all property types, how can you capitalize on this activity? Join us  at RealShare Orange County on August 16^th for impactful information from the leaders in Orange County CRE. Learn more .