July 26, 2016
Brexit’s Impact on U.S. Mortgage Rates

Mortgage rates and long-term bond yields are at near-record lows following the recent Brexit vote. Per usual, the state of the 10-year Treasury bond was an accurate predictor of the movement of mortgage rates. When yields fall, so do mortgage rates.

Rates Plummet After Brexit Vote

After the United Kingdom’s vote to leave the European Union, we saw yields on long-term bonds take a dive. This is a reflection of investors’ uncertainty as the global economy adjusts to this significant change. On the Tuesday following the vote, we saw an all-time low of 1.37% in the 10-year Treasury. Last January the rate was 2.25%. Similar effects were observed on the government bonds in Germany, Japan, and UK–with all three nation. hitting record lows.

According to bankrate.com, over fifty percent of economists believe that rates will continue to fall. If this is indeed the case, then we will likely be seeing home loan rates follow that same trajectory.

On the Thursday following the June 23rd vote, the reported 30-year fixed-rate average fell to 3.41% with an average 0.5 point. It was at 4.04% at the same time last year. Since the beginning of 2016, the rate has fallen by over 50 basis points, and 25 of those basis points fell in the past month. As for the 15-year fixed-rate average, rates dropped to 2.74% with an average 0.4 point. It has also dropped from where it was at this time last year, 3.2%. There is a similar trend with the five-year adjustable rate. Economists say these lowered rates are due to fallout from the Brexit vote.

Impact on Housing Market

While rates are dropping, the number of mortgage applications is increasing. The market composite index, which measures the amount of loan applications, rose 14.2 % the week following the vote. The refinance index and purchase index also increased, coming in at a 21% and 4% increase, respectively.  Homeowners know that when rates drop, they may benefit from refinancing their mortgage. Therefore, it is no surprise that 61.6% of all applications were refinance applications.

June was the strongest month of home sales since February 2008, with 592,000 properties sold. That’s a 3.5% increase from May and a 25% increase from June of 2015. The bottom line? While Brexit is taking the global economy for a spin, a strong job market and low mortgage rates are enough to maintain confidence in the US housing market.

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