Our brokers, and their borrowers, are still feeling the effects of the United Kingdom voting to leave the European Union – even though it happened in June. It will take years to implement, but that vote continues to impact rates. For those who slept through late June and all of July, Brexit is a mash-up of British Exit.
Soon after the vote different sides weighed in on its impact. Goldman Sachs, for example, quickly opined that its impact will be minimal in the U.S. Morgan Stanley differed. Britain leaving the EU will obviously impact their economy and that of nations remaining in the association, and in turn the United States economically and the clients of JMAC’s brokers through mortgage rates.
Yes, there will be an impact and it is already occurring. Stocks took a tumble initially, bounced back, and rallied through much of July. Interest rates also fell initially, and then crept back up later, waffled around for much of July but then shot up after Friday’s employment data here.
When there is turmoil, danger or disaster investors engage in what is known as "flight to quality." This means they sell volatile investments, like stocks, and purchase safe investments, such as bonds and mortgages for their fixed, and if U.S. Treasury bills and bonds and mortgages practically guaranteed, returns. So Brexit initially helped mortgage rates.
Moving forward what impact will Brexit have? It will provide more support for lower rates further into the future. There may be economic ramifications on an already ailing European economy that could exacerbate a recession. Our economy continues to move forward – not skyrocketing but not faltering. Any further drop in Europe could pull us down further – which as JMAC’s brokers know also leads to lower rates.