Sixteen months after the United Kingdom voted in favor of a referendum to exit the European Union, the ripples caused by that decision continue to be felt in ways that voters may not have expected. In the wake of the vote, officials began discussions with the European Union regarding the conditions of the U.K.’s exit from the EU.
The resulting issues that have arisen after the Brexit vote continue today – now it seems to be causing some concern for buyers and sellers in the U.K. real estate market. For example, in London, home prices dropped recently for the first time since 2009. The ongoing negotiations with the EU has created uncertainty regarding a wide range of topics, including immigration and investment. As a result, some buyers may be unsure about buying a home right now.
A wide range of issues can affect housing prices, including the supply of available homes, mortgage rates, and wages. But external factors not immediately related to the housing market can also move home prices in one direction or the other.
“The Brexit vote was an historic event,” said Greenfield Advisors’ Vice Chairman and Co-Managing Director Dr. Clifford Lipscomb. “An event of this magnitude will continue to send ripples throughout the UK economy. On a local level, it appears that London might be starting to feel the effects of the Brexit vote as potential buyers consider waiting versus buying a home right now.”
Retail prices, on the other hand, are on their way up following the Brexit vote. September saw retail sales increase 1.9 percent over the same time from last year, according to the British Retail Consortium and KPMG. While the jump in retail sales might appear to be a sign of a strong economy, analysts found that the increased retail sales could be attributed to a bump in prices. The price of goods increased partly because the pound has weakened 12 percent compared to the U.S. dollar since the Brexit vote.
Additionally, wages are not keeping up with inflation. Even as the U.K. unemployment rate reaches a new low not seen in more than four decades, wages are being outpaced by rising prices. Productivity in the U.K. is also down, and analysts said some of the blame can be pointed at the uncertain future created by the Brexit talks. Some government officials are considering raising interest rates following an increase in labor costs.
“When wage growth is down relative to inflation, that means that workers must work more to purchase the same amount of goods and services,” Dr. Lipscomb said. “If we add on top of this the general uncertainty created by Brexit, then we might expect the drop in housing prices, coupled with the weakened pound, to be one of the first in a series of economic signals that suggest the U.K. housing market may see more price depreciation, assuming other factors related to housing supply remain the same.”
Do you see the UK’s economy recovering in the coming months? Or will Brexit negotiations cast a larger shadow on the markets? Let us know your thoughts in the comments.