The Brexit aftermath has rattled the stock market and led to decline in
mortgage rates. While lower mortgage rates have been affecting
retirement accounts, they are helping people seeking to refinance their
home loans.
Notably, in the last week of June, the 30-year
fixed-rate mortgage averaged 3.48%, down from 3.56% in the prior week.
The 15-year fixed-rate mortgage averaged 2.78%, down 5 basis points
(bps). Further, the 5-year Treasury-indexed hybrid adjustable-rate
mortgage averaged 2.70%, declining from 2.74%.
Following Brexit,
the 10-year U.S. Treasury yield, which serves as benchmark for consumer
loans, tumbled 24 bps to 1.45%. Sean Becketti, Freddie Mac chief
economist stated, "This week's survey rate is the lowest since May 2013
and only 17 basis points above the all-time low recorded in November
2012. This extremely low mortgage rate should support solid home sales
and refinancing volume this summer."
Mortgage rates are
correlated to the 10-year U.S. government bonds yield. In Dec 2015, the
Federal Reserve announced the most awaited increase in the benchmark
federal funds rate after more than nine years and had plans to announce
four more hikes in 2016. This, in turn, led 10-year Treasury yields to
rise followed by mortgage rates.
However, no further hike has
been announced by the Fed so far, as it is reconsidering its plans in
the wake of the uncertainty prevailing in the global financial market.
In June meeting, the rate hike decision was kept on hold as “A U.K. vote
to exit the European Union could have significant economic
repercussions,” Fed Chair Janet L. Yellen stated. As a result, yields on
10-year Treasury notes plummeted to low levels since 2012.
Moreover,
Brexit gave rise to anxiety among investors, compelling them to seek a
safe refuge. All this ultimately led to ultra-low mortgage rates which
are expected to go down further.
Low mortgage rates can be a boon
for the U.S. real estate market. The reduction in home loan rates is
expected to give the U.S. buyers some respite.
Though stock
prices in the U.S. have bounced back, Brexit impact is expected to stay
for a while – which might deal another blow to mortgage rates.
Meanwhile, this can perk up housing demand in July, supporting the
recovery in the economy.
In spite of the plunge in rates,
investors are apprehensive about investing in the housing market, thanks
to the volatility rippling through the financial world. However,
homeowners seeking lower rates for refinancing are definitely big-time
gainers.
"In light of the Brexit vote and other recent economic
news, MBA now predicts that the Fed will hike only once this year,
likely in December," said Lynn Fisher, Mortgage Bankers Association vice
president of research and economics. "If the financial-market
disruption from Brexit persists, the likelihood of even a December hike
would be reduced" he added. Therefore, such prediction is an added
advantage for both buyers and homeowners looking for financial aid at
lower rates.
Notably, low rates are expected to spur higher real
estate activity and lending as experienced in 2012. Therefore, for
mortgage lenders including Bank of America Corporation (BAC - Analyst Report) and Wells Fargo & Company (WFC - Analyst Report) , low rates could benefit their consumer and home loan businesses.
Though
low rates are a boon for homeowners, mortgage REITs might suffer. When
homeowners prepay, investors are forced to reinvest the proceeds in a
lower-rate investment yielding low returns. Therefore, rise in
prepayments turn out to be negative for REITs, including those with huge
exposure to fixed-rate, government-guaranteed mortgages. Such companies
include American Capital Agency (AGNC - Analyst Report) and Annaly Capital Management (NLY - Analyst Report) .
Bobby Darvish has been involved in the mortgage industry since 1998 He is a Certified Mortgage Planning Specialist from CMPS Institute, has studied residential mortgage & commercial mortgage underwriting courses, is a Business Finance Consultant graduate as well as a licensed broker.
Tuesday, July 5, 2016
Brexit Drags Mortgage Rates Down, Will They Hit Rock Bottom?
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment