How Britain leaving the European Union may make it easier for you to buy or sell a home
By Erik J. Martin
CTW Features
They say the first rule of real estate is location, location, location. So how can events in as far off a location as Britain possibly affect your ability to buy or sell a home here in the States? Brexit could be the catalyst, say the experts.
Britain’s decision in June to eventually leave the European Union — also known as “Brexit” — sent shock waves through the global economy, initially triggering major losses in stock markets around the world and contributing to political uncertainty in Europe. Now, experts say Brexit also is having a notable impact on the U.S. housing market by causing mortgage interest rates to dip lower.
Daniel C. Price, president/CEO of OneTitle National Guaranty Company in New York City, says American mortgage rates have decreased in the weeks following the Brexit verdict due in large part to jittery investors concerned that the world economy could slow.
“Nervous investors rushed to put money into safe places, especially low-risk, high-quality bonds that are extremely safe, like U.S. Treasury bonds. This bid up the price of those bonds,” says Price, who adds that bond prices and interest rates move in opposite directions — when one rises, the other falls.
In order to lend money to people looking for mortgages, “lenders borrow that money by taking checking and savings deposits, and they also sell mortgage loans to investors,” Price says. “In both cases, people are willing to give money to lenders at lower interest rates following the Brexit vote. The result is that banks can afford to offer mortgage at lower interest rates.”
Secondly, worries over the global economy following the Brexit decision make it less likely that the Federal Reserve will raise interest rates in the short term.
“Both factors have resulted in lower mortgage rates,” Price says.
Lower rates make it more affordable to purchase a home today and enable buyers to spend more. And that’s a win-win for buyers and sellers: buyers benefit from lower payments and more purchasing power while sellers have more prospects to attract, which can bid up the selling price.
“The long-term effect of an influx of homebuyers could lead to an increase in demand for an already limited inventory of homes for sale,” says Vijay Sandal, Realtor with Nourmand & Associates, a Hollywood, California-based luxury real estate boutique. “This, in turn, means that house prices could further be on the rise.”
One potential drawback to Brexit-influenced lower rates, however, is mortgage borrower complacency.
“As rates stay lower for longer, people start to lose the urgency to act now. The consensus starts to shift to ‘rates aren’t going anywhere so I don’t have to rush,’ which can have a dampening effect on the housing market,” says Rick Arvielo, owner of New American Funding in Tustin, California.
That begs the question: should home shoppers act quickly to capitalize on lower mortgage rates or wait for them to possibly dip even lower in the coming weeks or months?
“Prospective borrowers should move now and lock in at current low rates,” says Joe Melendez, CEO of Dallas-headquartered ValueInsured. “Even if rates go slightly lower, underwriting guidelines may change or home prices may rise, mitigating any potential benefit from a further decline in rates.”
Sandal agrees.
“The U.S. Federal Reserve decided to keep interest rates unchanged at its June meeting, and Chair Janet Yellen has indicated that she’s not sure when the next hike will come. This means that, for the near future, interest rates should stay low, but there is no certainty that this will continue. Markets are reactionary, and as time goes on markets tend to stabilize,” Sandal says. “Lock in a low mortgage rate now before it may be too late.”
Price cautions against trying to perfectly time when to pull the trigger on a mortgage loan.
“It’s more important to look at mortgage rates from many different lenders than worrying about exactly when to lock in a rate,” he says.
© CTW Features
