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Steve Hovland, director of research for HomeUnion, a U.S. real estate investment management firm, said Friday that while the overall impact of the UK’s exit from the EU will take several months to become clear, uncertainty is sending sending investors rushing to safe havens, including U.S. Treasuries.
In a statement after the exit decision, Hovland said that after the UK’s surprising vote to leave the EU, the equity markets across the globe entered a tailspin.
“The gains achieved earlier this week as polling pointed towards a small likelihood of the UK staying were given back, along with the loss of billions in equity,” Hovland said.
The pound has declined 10% percent against the U.S. dollar to the lowest level since 1985. The Dow, S&P 500 and NASDAQ futures also plunged hours ahead of trading.
“As a result, investors and home buyers can expect low interest rates for longer and a pause on interest rate hikes from the Fed until at least September,” Hovland added. “Even then, the volume of capital flowing into the safety of the bond market will likely mute any impact the Fed has with a 25 basis point lift in the funds rate. The average 30-year mortgage rate is expected to remain below 4% into 2017.”
Hovland added:
“The wildcard with the UK’s exit from the EU is global contagion. A downgrade in the UK’s credit rating by the S&P, which is very likely, could tip the country into recession. The rest of the globe is also barely growing, and a financial shock could diminish confidence in the central banks and send much of the world into contraction.”