Interest rates already are very low. In June 2016, 30-year fixed-rate mortgages have stayed around 3.7 percent, nearly a three-year low. Now there is a strong possibility that rates will go even lower because Britain has voted to leave the European Union.
International concerns, particularly slowing growth in China and the European Union, have played a major role in driving down mortgage rates. 30, 20, even 10 years ago, international issues did not impact US mortgage rates as they do now.
As the Washington Post noted today, international and domestic investors impact mortgage interest rates through the mortgage-backed security market. Because these securities are considered relatively stable, investors move to them when economies and markets elsewhere flounder. Mortgage rates are also heavily influenced by the yield on 10-year Treasury notes, and investors have embraced them to as turbulence in foreign markets has been growing. Together, they have driven down mortgage rates for Americans.
Early Friday, as global markets reacted to the Brexit vote, investors bought gold, driving up the price.
Domestically, the US economy is healthy with unemployment levels down to August 2007 numbers and wage growth nearing pre-recession levels. Still the jobs report earlier this month showed that job growth was minimal in May. Following the release of that report on June 3, interest rates fell about a tenth of a percent, according to a report released Tuesday by financial service investment firm Compass Point. They had climbed to 3.81 percent by June 1, but dropped to 3.74 percent the following week, and now are at 3.73 percent.
As a result of all these concerns, the Fed voted in June to hold the benchmark interest rate at its current level. They had increased it by 0.25 percent in December, the first time since 2006, and said at the time that the Fed expected to raise rates at least four more times this year. Now, the Fed is saying it only two more increases.
Following the Fed vote to hold the benchmark interest rate at its current level, yields on 10-year Treasury notes fell to levels not seen since 2012. Mortgage rates will probably drop even further with Brexit.
The vote by the UK to leave the EU is not an abstraction for us here in the United States. Will the world keep spinning - of course. Will there be some fall out from the UK leaving the EU? Of course. Will it affect us in the US? Of course. We are part of a global economy now, and even the mortgage on 123 Main Street, Smalltown, US, is affected by that global economy.