The impact of the British exit from the EU on America’s housing market.
Globalization can be a tricky thing when it comes to finance. In an increasingly global market political changes an ocean away can have a significant impact on our economy and even our daily financial outlook here. That’s exactly what’s happened with the Brexit – the British referendum vote to leave the European Union in order to reestablish as an independent country outside the single market.
The decision has caused the British pound to drop in value and created mass uncertainty in investment markets around the world, including the stock market here in the U.S. However, one U.S. market is benefitting from the leave vote – the real estate market – and anyone thinking of buying a home should take note, because there’s not been a better time to buy a home in the past decade.
“Mortgage interest rates are only 11 points higher than the lowest point they’ve reached in the past 13 years,” says Maria Gaitan, Housing Director of Consolidated Credit. “In fact, today’s rates are even lower than they were in the post-recession market that we saw in 2012.”
Lower mortgage rates get even lower
Following the Great Recession and the corresponding crash of the real estate market, interest rates of a traditional 30-year mortgage during the recovery were around 4% and they’ve remained below 5% in the years after. Now those low rates have dropped even lower, creating market conditions that are worth noting.
- Last year, the rate on a 30-year fixed rate mortgage was 4.08% – now that rate has dropped to 3.65%
- On a 15-year mortgage the rate is now 2.78% whereas it was 3.24% just one year ago.
Those low rates are good for homebuyers for two reasons:
- Low interest rates mean you save money significantly over the life of the mortgage
- Low interest rates also mean lower monthly payments
Let’s look at a 30-year fixed rate mortgage for $150,000. At last year’s rate of 4.08% the monthly payments on a loan would be $723.06 and total interest charges over the 30-year life of the loan would be $110,301.00. By contrast, at 3.65% the monthly payments would be $686.19 and total interest charges would be $97,028.16. So even though the difference in interest rate is less than 0.5% the difference in the monthly payment is $36.87 and the total interest charges over the life of the loan are decreased by $13,272.84.
Why rates are so low today
Mortgage interest rates – and interest rates in general (except for federal student loans) – are set by the Federal Reserve and tied to the bond market in the U.S. When the stock market is weak or uncertain, the bond market becomes more active and that increase typically leads the Feds to lower interest rates.
“The stock market dropped significantly in the days following the leave vote,” Gaitan explains, “and while the market has recovered over the weeks since, continued economic uncertainty means bonds are still strong. Rates should stay consistent and the Federal Reserve is unlikely to raise them for the rest of the year, regardless of how the market equalizes in the months following.”
Time is of the essence
While rates should remain steady at these attractive lows through the end of 2016, Gaitan warns homebuyers to act quickly now in order to ensure they can secure a mortgage before the end of the year.
“Cash-only investors are already flooding the market and snapping up properties. It’s become a sellers’ market because demand has outstripped the available inventory. That means homebuyers looking for a residence face steep competition.”
Gaitan advises prospective homebuyers to start the process now to ensure they can get into a new home before the end of the year. Homebuyers should also be patient and keep their options open, because the chances of being outbid by a cash-only buyer when you put in an offer are much higher in a market like this.
“Keep your options open and be flexible, because you may be outbid on the first few offers you make,” Gaitan says. “But with the right team assisting you and a little patience, you can get a great deal on a home for your family. It’s worth taking the plunge.”
In order to be successful Gaitan advises that a homebuyer’s team should include a good Realtor® – particularly if you’re a first-time buyer who is new to the homebuying process – and a HUD-certified housing counselor.
“A HUD-certified housing counselor can help you get your credit and budget in order so you’re in the best position possible to qualify for a good mortgage and get approved,” Gaitan explains, “while a Realtor can assist greatly in helping a buyer find properties that fit their needs and in making offers that get accepted.”
If you’re thinking of buying a home – or even if you’re currently a renter who wants to know if you could afford to buy a home – we can help. Call Consolidated Credit today at 1-800-435-2261 to speak with a HUD-certified housing counselor at no charge. We also invite South Florida homebuyers to sign up for our next Homebuyer Workshop here at our home offices in Plantation Florida. You can learn about the homebuying process and receive a certificate that may help you qualify for important programs like down payment and closing cost assistance.