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Chrisman's Corner: Rates - Not Pressured to Move Higher

Despite the drop in rates on Friday and again early this week caused by the United Kingdom voting to leave the European Union, there are still those that believe rates will eventually go up. Should JMAC’s brokers be concerned?

By the end of this year, the MBA’s chief economist Mike Fratantoni expects rates to reach 4 percent. He noted that he’s turned his estimates more conservative in recent months, but predicts an increase nevertheless.

But all bets are off with the “Brexit” (British Exit) referendum passing, however, and rates tumbled Friday. No one has a crystal ball. “At this point, it is unclear whether this will just be a short term disruption, or whether it will have a longer-term impact,” Fratantoni said. “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.”

Our brokers have seen the increased influence of overseas events on U.S. mortgage and Treasury rates. So even though our economy is doing well, international concerns, particularly slowing growth in China and Brexit, have played a major role in driving down mortgage rates. Before that we had the trouble in Russia/Ukraine and then economic woes in Portugal, Italy, Greece, and Spain keeping rates low due to the “flight to quality.”

JMAC’s brokers know that our mortgage-backed security market is considered relatively stable, they attract buyers when economies and markets elsewhere flounder. Mortgage rates are also heavily influenced by the yield on 10-year Treasury notes, and investors have flocked to them to escape turbulence in foreign markets. Together, they have driven down mortgage rates for Americans.

So even though the U.S. economy is healthy, if not surging, with unemployment at its lowest since August 2007 and wage growth nearing pre-recession levels, it is not nudging rates higher. So if you like rates where they are, you could be happy for quite some time.