How Will the Brexit Impact the U.S. Mortgage Market?

July 6, 2016 | By

Days after voters in the United Kingdom cast the stunning vote to leave the European Union (EU), some real estate experts on this side of the pond were left wondering what immediate impact, if any, the British exit or the “Brexit” would have on the U.S. mortgage market.

That impact, those experts say, could be felt in the form of lower mortgage rates, an incremental increase in refinance activity, and additional demand for affordable housing that continues to outpace the existing supply.

“We will inch closer to all-time—or at least 60-plus-year—lows for 30-year fixed rates, but it will be harder to reach those levels than you might think,” says Keith T. Gumbinger, vice president of HSH.com, a market research firm.

With U.S. treasury rates falling, Doug Duncan, senior vice president and chief economist for Fannie Mae, expects mortgage rates to continue to fall in the short term, especially as the chances of the Federal Reserve hiking interest rates in 2016, he says, are now highly unlikely.

The same can be said about the demand for housing. While the lower rates may add to demand for housing, it won’t be a marked increase.

“Mortgage rates have not been much of an impediment to potential buyers over the last couple of years,” says Gumbinger. “Rather, access to credit and to affordable and desirable homes to buy are likely more important to the market at the moment.”

Effect on Refinances

When it comes to refinances, there should be some pickup, depending on how far interest rates go down.

“We think rates would have to go down at least another quarter of a percent to reignite a pretty big boom in refinances,” says Duncan.

Still, the window of opportunity for refinancing has opened a little bit wider following the Brexit.

“If the decline in rates holds for a bit, we would expect to see an incremental increase in refinance activity,” says Gumbinger.

Uncertainty in the Air

Perhaps the scariest aftershock caused by the Brexit vote is the uncertainty it has engendered in the minds of those in the business community, especially after earlier polling and research predicted a different outcome.

Those polls had forecast that a majority of U.K. voters wanted to remain in the EU.

Now that those polls have been proven wrong, Duncan fears that this will only create more uncertainty in the business community, especially during a U.S. presidential election.

Notes Duncan, “If the business community loses trust in what the polls say about the U.S. presidential election, that will only cause more doubt among that community and, in turn, may dampen capital investment activity and hiring.”

Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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