And Then, It Hit: Brexit Drops Rates Down to 2016 Low


As we were writing our weekly news segment exactly seven days ago, the populace of the United Kingdom was going to vote on Brexit—the idea that Brits would pull away from the European Union. The polls were so close to 50-50 that we honestly had no way to gauge which way it would end up. We did suggest, however that:

“If Britain were to end up staying in the EU, the U.S. stock market could rally around it, which could inspire The Fed to raise rates instead…which would raise mortgage rates as well.”

Britain did not end up staying in the E.U., and—although The Fed hasn’t ruled definitively on its future behavior—most assumed that rates will stay low, and that reflected in the market this week.

The average rate on a 30-year fixed-rate mortgage fell to 3.48 percent, the lowest point it’s seen during 2016. That’s down from the already low 3.56 percent of the week before, and much lower than where it was during the same period last year (where it hovered above 4 percent).

If you look across recent history, low interest rates don’t necessarily mean good things for the American economy (unless you’re in the market for a new home, of course). The all-time record low occurred during September of 2012, when Hurricane Sandy struck the East Coast. Accordingly, few people were in search of a loan. Couple that with a stumbling stock market and rates fell as low as 3.31 percent.

Is it possible that rates could get even lower, pushing past that record threshold? We’re not inclined to put money on it…but it certainly seems as if anything is possible at this point. Janet Yellen’s plans to gradually raise rates have continuously been put on hold—first because of a weak jobs report during May and now Brexit.

“It was fair to say it was one of the factors that factored into today’s decision,” she said when reporting on the Fed’s decision to stay steady earlier this month. “It could have consequences in turn for the U.S. economic outlook.”

Indeed. Some are suggesting already that she and The Fed may even lower rates before we see a rise. Stay tuned.

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