Mortgage interest rates are down, and, not surprisingly, new mortgage applications were up last week, with industry insiders pointing to last month's "Brexit" vote as a driving factor.
According to the Mortgage Bankers Association, 30-year fixed mortgage rates for standard FHA home loans fell to 3.53% last week. That's down from 4.0% at the beginning of the year, and from 4.04% in July, 2015.
Lower home mortgage rates have triggered a big uptick in new mortgage applications, as the MBA reported a 7.2% increase in new mortgage activity, for the week ending July 8, 2016. That's officially a trend, as economists like to say, as mortgage applications had risen by 14% for the week ending July 1, 2016 (the Brexit vote took place on June 23, 2016).
Most of the new mortgage activity is focused on refinancing, as homeowners seek to jump on those lower rates. Home mortgage refinancing was up 21% in the week after the Brexit vote, and at 61% of all new mortgages, refinancing deals are at a five-month high, the MBA reports.
"Interest rates continued to drop last week as markets assessed the impact of Brexit, downgrading the likelihood of additional rate hikes by the Fed, and mortgage rates for 30-year conforming loans dropped to their lowest level in over three years," says Mike Fratantoni, chief economist at the Washington, D.C.-based MBA. "In response, refinance application volume jumped almost 21% in the week after the Brexit vote to its highest level since January 2015."
Mortgage industry insiders say the Brexit vote triggered a great deal of economic uncertainty in the U.K. and in Europe, driving global investors into U.S. mortgages, which are deemed a "safe haven" investment these days.
"It really is about a flight to safety," says Samuel Rines, senior economist and portfolio strategist at Avalon Advisors, in Houston. "The predominate effect is this - Brexit has pushed down long term interest rates, which are tied to mortgage rates."
Other financial services professionals concur with that assessment and say Brexit has provided a much-needed shot in the arm for the U.S. mortgage market.
"Brexit has caused a flight to 'quality and stability, which implies a significant inflow of funds into U.S. Treasury securities, and into other stable economies like Germany," says Bryan Sullivan, chief financial officer at loanDepot. "This, in turn has driven interest rates lower in the U.S. and negative in Germany."
Lower interest rates have led to historically low mortgage rates for U.S. consumers, causing a significant inflow of mortgage applications over the last three to four weeks, Sullivan adds. "The long term effects of Brexit on the world economy are still unknown, but the short term benefit to U.S. consumers is very attractive financing for home purchases and refinance."
Others say that low mortgage rates should be around for a while.
"There is reason for optimism," says Steve Hovland, director of research at Home Union, in Irvine, Calif. "Since 30-year mortgage rates are largely tied to U.S. Treasuries, homebuyers should enjoy sub-4% interest rates into 2017."
When the Federal Reserve does raise rates, perhaps in December, a 25 basis point uptick will have little impact on mortgage rates.
"An additional two or three hikes will be necessary to move the needle on consumer loans, including mortgages and auto financing," Hovland says.
For now, though, a vote to unlink the U.K. from the European Union has caused a major, and mostly positive, ripple effect in the U.S. mortgage market. For the growing number of homeowners taking advantage of low rates to refinance their mortgage, or for home buyers leveraging lower interest rates to buy a house - the takeaway is this: "Hey, no complaints - we'll take it."