Interest Rates move down as Brexit fears ease

Interest rates for buying a home on the Palos Verdes Peninsula edge downwardthis week following the turmoil in the markets due to the U.K. vote to leave the EU. The following are excerpts from the newsletter on interest rates published by HSH Associates :

“As expected, mortgage rates were incrementally lower with week as markets continue to digest the fallout from the U.K’s exit from the European Union. The initial leg down in mortgage and other interest rates that happened last Friday and to a lesser degreeon Mondaypetered out during the week, as investors apparently decided that the world hadn’t come to an end after all. Equity markets around the world have retaken some or all of the declines that occurred in the aftermath of the vote, and a kind of calm has formed in markets.

That calm will by no means be permanent. With still so many unknowns to be revealed, and with a divorce process that not only hasn’t even begun yet (and will take up to two years to happen) there are plenty of opportunities in the days, weeks and months ahead for market-wrenching episodes of volatility. Economic and political posturing are already underway, as are ruminations of possible splits by other countries.

Can interest rates fall further as we go? Certainly, it’s possible, but it bears remembering that Treasuries are getting the strongest bid from investors, with mortgages much less so. As such, headlines of “new record lows” for various interest rates may appear from time to time, but these may not include fixed mortgage rates.It is expected that there will be wide-ranging economic repercussions from Brexit, and most economists have trimmed growth forecasts as a result of it for economies around the globe.

With an incremental decline in rates we could see an incremental increase in refinancing, though. Big “interest rates falling” headlines are usually enough to get folks to take a look at their options, but there’s not much additional value with a refinance at a 3.5 percent rate instead of 3.625 percent one. Still, it is fair to say that the window of refinancing opportunity has opened a little wider, and some people with “old” loans (up to 2011, and those originated July 2013 to about April 2014) may see an opportunity, since the break in rate will be close to a percentage point. How many of those rates exist where a homeowner can meet today’s lending criteria and cover refinancing costs isn’t all that clear, let alone how many homeowners will jump into the fray.

If rates remain at these levels for a while, we could also see an incremental pickup in home sales. To be sure, mortgage rates have been low and affordable for some time and are not the hindrance to a faster pace of home sales. Rather, a lack of viable and desirable inventory, high prices/reduced affordability, the difficulty of many folks to meet today’s underwriting criteria and even a lack of desire for homeownership among once-burned audiences are more likely keeping a lid on faster growth. Lower rates can help spur demand, but that demand doesn’t put more homes on the market, and the increase in competition for available stock can lift prices and wipe out any benefit lower rates might bring.

So, at the moment and perhaps beyond, there’s just an incremental impact from Brexit on mortgage rates and markets. Near record lows for mortgage rates are the order of the day. As noted last week, getting to new lows may prove sticky, since when we achieved them at other intervals, we had a Federal Reserve snapping up GSE debt, Treasuries and MBS as fast as they could come to market — and with no limits. Not the case today, and while Treasuries may head lower at times, there is no guarantee that mortgages will follow in lockstep, if at all.

Treasuries did head a little lower as we closed the week, most probably money looking for a place out of harm’s way as U.S. financial markets are closedon Mondayfor the Independence Day holiday. After that, a bit of important data is due as the week goes along, not the least of which are the minutes from the June Fed meeting. Those will probably reflect some uncertainty as to where we’re going in terms of monetary policy and impart a cautious tone. If the other data due out (employment report and more) show improvement, mortgage rates may have some space to firm a bit. We’ll hedge a little, but call for a couple of basis point increase – just an incremental change, as it were — in interest ratesby week’s end.”

The following are interest rate quotes from American California Financial: