Britain’s vote to exit from the European Union hurt U.S. stock markets temporarily, but it could help homebuyers.
Both stock prices and U.S. interest rates started falling June 24, the day after Brexit
The average rate for a 30-year-fixed mortgage is now about 3.45 percent, the lowest it’s been since 2012.
“The uncertainty created with Brexit should keep U.S. rates down longer,” Arizona economist Elliott Pollack told me from Austria, where he is vacationing and getting a closer view of fallout from Brexit. “That’s good for housing.”
A little explainer:
When stock markets stumble, more investors opt to buy U.S. Treasury bonds. An increase in buyers pushes up bond prices but drives down their yields or interest rates. And the yield on 10-year Treasury bonds correlates the closest with mortgage rates.
“You get bad news and interest rates fall,” David Newcombe, a co-founder of Scottsdale-based Launch Real Estate, told me. He lived in London until moving to Phoenix in 2003.
It’s still unclear how Brexit will shake out because the market rebounded by week's end.
Current lower interest rates mean homebuyers can afford a house that costs 8 percent more than they could at the beginning of the year, according to Realtor.com economist Jonathan Smoke.
Homebuyers aren’t the only ones who benefit.
If you are a homeowner, it’s a good time to think about refinancing. The monthly payment on a $250,000 mortgage with a 3.5 percent rate is about $220 cheaper than a loan with a 5 percent interest rate.
Stock market declines do often have a negative impact on housing. Last August, when stocks dove over concerns about an economic slowdown in China, luxury-home markets in the U.S. slowed. Metro Phoenix’s luxury market definitely did.
Of course, that’s because many million-dollar homebuyers have bigger stakes in stocks than typical buyers.
“The sudden drop in the stock market will be negative for the luxury market,” Arizona housing analyst and British citizen Mike Orr told me.
But he doesn’t expect the impact will last long. Orr does think the drop in interest rates could be a longer-term trend.
U.S. stock markets started to rally on Wednesday and Thursday, something analysts attribute to an ease over concerns about Brexit’s economic impact.
Maybe a $200 or more drop in a monthly mortgage payment can help ease the pain of a drop in our 401(K) accounts this month.
Maybe just a bit.