Yesterday, UK citizens have voted to leave the European Union by less than a 4% margin. The ramifications of this decision have already started to unfold. Despite the fact that this decision was made across the pond, it will have many consequences around the globe. Yes, it will even go as far to reach the San Diego suburb of Lemon Grove! For Americans, the vote will have an impact on US interest rates.
Back in December of 2015, the Fed increased interest rates with the intention of raising them four more times this year. Despite these plans, the Fed has abstained from raising rates. Federal Reserve Chairwoman Janet Yellen cited that the unknown “vulnerabilities” that might occur in the aftermath of the Brexit vote have kept them at bay.
(source: Fed Reserve Bank of St. Louis)
Mortgage rates have dropped to a three year low and now thanks to Brexit, they are not expected to jump up anytime soon. The chief economist for Mortgage Bankers Association stated that, “At this point, it is unclear whether this will have a longer term impact…. our best guess at this point is that the impact on the mortgage market will be to keep mortgage rates lower for longer, likely leading to another pickup in refinance activity”. According to the Mortgage Bankers Association, there has been a 17% increase in loan applications in the first quarter will a 10% hike in refinancing. These numbers are only expected to stay high as the mortgage rates remain low.
Several of the Fed committee members are pushing for one rate hike due to low growth and slow job. If this trend continues it is possible that interest rates will not change at all throughout the 2016 year.
Other financial experts are not so sure that these low interests rates will last too long. Greg McBride, chief financial analyst at Bankrate, advocates that borrowers lock their in their rates now before it is too late. He is under the impression that rates will rebound by the end of the year, no matter the result of the Brexit vote.
But because interest rates are low, that does not necessarily mean indicate a positive sign for the US economy. The head of US macroeconomics at the New York-based Oxford Economics, Greg Daco, believes that the Fed’s decision to hold off on raising interest rates shows a weakness in the US economy. He argues that if the economy were stronger the Fed would not worry about the Brexit decision.
Either way, it looks like we will have at least a few more months left of low rates. Basically now is a good time to look down that Lemon Grove property so you can enjoy the San Diego sunshine. In the meantime we can watch the consequences unravel of the Brexit decision on Europe and the world as a whole.