On the heels of a potential Brexit, U.S. mortgage rates have fallen for the second consecutive week — reaching a three-year low, according to the latest Freddie Mac report. The average rate of a 30-year fixed-rate mortgage dropped to 3.54 percent this week, down from 3.56 the previous week. A year ago, the average rate on a 30-year fixed-rate mortgage was 4.0 percent.
“The 10-year Treasury yield continued its freefall this week as global risks and expectations for the Fed’s June meeting drove investors to the safety of government bonds,” said Sean Becketti, chief economist for Freddie Mac.
“Wednesday’s Fed decision to once again stand pat on rates, as well as growing anticipation of the U.K.’s upcoming European Union referendum will make it difficult for Treasury yields–and more importantly–mortgage rates to substantially rise in the upcoming weeks.”
On Thursday, British, Irish and Commonwealth citizens over the age of 18 that reside in Britain will vote on whether the United Kingdom should remain a member of the European Union, or leave. The vote on Brexit, which is short for “British exit”, has the ability to affect the global housing markets and was cited as one of the reasons the Federal Reserve did not raise interest rates last week.
“Recent economic indicators have been mixed, suggesting that our cautious approach to adjusting monetary policy remains appropriate,” said Fed chairwoman, Janet L. Yellen, who emphasized the risks in moving too quickly. The Federal Reserve said future increases would most likely unfold at a slower pace.
Lawrence Yun, chief economist at the National Association of Realtors (NAR), said the potential for Brexit has raised “questions of confidence” for investors and encouraged them to seek new opportunities in other markets.
“The U.S. will be considered competition or a safe haven,” said Yun. “That could lead to interest rates falling. The mortgage rate here in the U.S. could begin to decline because of lower GDP [gross domestic product] expansion. That always benefits the housing market.”
With homeownership continuing to get out of reach for Britons, and Bexit looming ahead, an influx of foreign capital to the U.S. real estate market could be coming soon.
According to Yun, foreigners invested approximately $80 billion into the U.S. real estate sector last year. That number makes up roughly two or three percent of the overall U.S. real estate worth, which is estimated at $22 trillion.
Last year, NAR published a report on existing-home sales to resident and non-resident foreigners that found approximately 209,000 existing-homes were sold to foreign buyers, with a total foreign sales dollar volume estimated at $104 billion. The report, which tracked existing-home sales from April 2014 through March 2015, shows that five countries accounted for 51 percent of U.S. existing-home purchases: Canada, China, Mexico, India, and the United Kingdom.
However, the stream of foreign investment could spell trouble for first-time homebuyers.
“First-time buyers are struggling to get into the market as it is. If more foreigners, typically cash purchasers, get into the market, they will face stiff competition to get their properties,” said Yun.
“Typically younger purchasers need a mortgage. If they have to compete with foreign buyers with all cash, that hinders first-time buyers from getting their home.”
Many economist believe if Britain were to leave the European Union it would have drastic effects on the country’s economy, which has proven true so far. News of Brexit has already caused the pound to drop to its lowest valuation in seven years, including all but halt real estate activity in both residential and commercial markets. In addition, the U.K. Treasury has warned of a 10 percent – 18 percent hit to house prices by 2018,
“There is a fairly strong consensus the British economy is going to be negatively affected by Brexit,” said New York real estate attorney Edward Mermelstein. “Paired with what has been happening recently in the investment atmosphere, it’s only going to put additional pressure on Britain as a place to invest.”
A recent KPMG survey reveals that two-thirds of global real estate investors believe Brexit would result in less inward investment into UK property and property companies. The survey found that 32 percent of investors have reduced–or plan to reduce–investment into UK property prior to the referendum, while 36 percent believe their own organization would be less likely to invest in UK property post-Brexit. According to the survey, the main countries set to benefit from the UK leaving the EU are Germany and France.
As of now, U.S. Mortgage rates appear to be destined to remain at very low levels. The Federal Reserve won’t make a decision on interest rates until their next meeting in July, which is not expected to result in a rate increase.
