Brexit upheaval sends mortgage rates lower

Call it the Brexit Bonus.

The vote on June 23 by Great Britain to exit the European Union has sent bond prices soaring and mortgage rates lower. Rising bond prices translate to lower yields which generally track mortgage rates and have given impetus to homeowners to refinance and or take out new loans.

The Mortgage Bankers Association announced this week that mortgage applications surged 14 percent in the week ending July 1 from the previous week. The association’s Refinance Index rose 21 percent from the previous week and reached its highest point since January 2015.

The 30-year fixed mortgage rates that were 3.625 percent for the average borrower a few weeks ago have since fallen to about 3.25 percent since the Brexit vote, said Mike Gould, senior vice president of mortgage lending at Nevada State Bank.

“We’re projecting a really strong third quarter because we don’t feel like rates are going to go up,” Gould said. “The one thing about the mortgage business is the applications that you’re talking in July are loans you’re closing in August and September. A third quarter with low interest rates bodes well for a strong fourth quarter as well. A lot of it has been in the last week or so since the Brexit vote and all of the uncertainty with Great Britain leaving the European Union.”

Given the current trend, mortgage rates could fall below 3 percent, and that would spur even more activity, Gould said. Those with the best credit scores are currently getting mortgages for 3.125 percent, he said.

“It’s the lowest it’s been since the crash (of the housing market and economy late decade), and it looks like they can go lower,” Gould said.

The downward trend wasn’t expected this year, said Sean Christensen, the Las Vegas-based regional manager with Security National Mortgage, a mortgage lender. Many projected the Fed to raise interest rates on a quarterly basis, but a slow-growing economy and a weak May jobs report has prevent that from happening even before Brexit, he said. The June jobs report, released Friday, may temper that.

“This is great for the buyer,” Christensen said. “People should take advantage and refinance and be out buying.”

For someone financing a $350,000 home, that means a monthly mortgage payment goes from $1,646 if they had a 3.825 percent mortgage to $1,523 a month for a 3.25 percent mortgage, Gould said. It’s about $88 a month in savings for a $250,000 home he said.

“That’s a $100 more a month that would go into the economy,” Gould said. “They can spend it on retail, buy a more expensive car or who knows what.”

For those looking to buy, that could be the difference in buying an even larger home, Gould said. Interest rates are so low that someone who could afford a $300,000 home six months ago could now afford a $350,000 home, he said.

“They might upgrade with a lot of new construction going on,” Gould said. “They may have said six to eight months ago they need to stay in the $300,000 price range are now saying we as a family can get the bigger house or upgraded kitchen.”

Some even say that buying a home is a better investment than dealing with the volatility of the stock market since the Brexit vote. The median price of homes in Las Vegas was $112,000 in 2012 and is $235,000 today, said Scott Beaudry, president of the Greater Las Vegas Association of Realtors.

“I think it’s the safest place to get the return on your money,” Beaudry said. “That’s why investors are still purchasing.”

Beaudry said falling mortgage rates are great news for those looking to buy. The problem remains, however, of the limited inventory of homes on the market for buyers. The supply is three months, below the normal point of six months, and people who want to buy can’t always find the home they want, he said. That supply problem isn’t going away this summer, he added.

“There were so many foreclosures that investors bought up the properties and are holding them,” Beaudry said. “The rental market has skyrocketed, and they won’t put them on the market to see a return on their investment over the years.”