Over the past two days, Wall Street has essentially forgotten about Brexit, which just last week sent markets crashing globally.
So far this week, the Dow and other major indices have regained much of what was lost due to the unknowns surrounding Brexit.
However, the 10-year bond yield (which generally directs consumer mortgage rates) has remained depressed. This is good news for mortgage rates, but so far there hasn’t been too much movement, despite what the headlines might say.
There Hasn’t Been a Freefall
Just take this headline from a LendingTree press release: Brexit Sends Mortgage Rates into Freefall
If you actually read the accompanying release, it says mortgage rates fell 14 basis points since the UK voted to leave the EU. If you’re not familiar with basis points, they are simply percentage points, or in this case 0.14%.
So a mortgage rate that was 4.625% pre-Brexit is now around 4.50% post-Brexit. That’s if the bank or lender you are working with actually bothered to lower rates. I’d hardly refer to that as a “freefall.” I’d call that a blip most people wouldn’t even notice who don’t do this for a living.
On a $250,000 loan amount, we’re talking about less than $20 a month in savings.
As I mentioned in that earlier Brexit post, lenders are wary about lowering rates quickly because sentiment can change just as fast. We saw that this week as the markets shrugged off Brexit.
They don’t like to get caught out and lose money, much like any other business.
No One Knows What’s Going On
As far as I can tell, nobody really knows what impact Brexit will have, and once traders kind of realized that, everyone began buying stocks again at seemingly bargain basement prices.
I suppose they determined that any move(s) associated would Brexit would take years, and because trading is very of the moment, there was no need to continue to panic, at least not now.
But the vote still stands, and the UK will eventually leave the EU (it should at least per the referendum). So that means at some point we’re going to have to wake up and face reality.
Whether that’s next week or next month, I wouldn’t be surprised if we saw increased volatility in the next several months through the end of the year and beyond.
And that volatility should push mortgage rates even lower. Throw in what appears to be a very important presidential election and you’ve got a perfect recipe for upheaval in the financial markets. And that’s not even factoring in global terrorism and increasing geopolitical tension.
The point here is that all the headlines are screaming about falling mortgage rates, but if they’re only an eighth lower than they were last week, that’s not even newsworthy, let alone noteworthy.
Unknowns Are Your Friend
The thing is, rates were already very low before Brexit, and didn’t seem to be displaying any signs of moving higher anytime soon because we live in a world of uncertainty right now.
Sure, you could argue just to refinance now because there’s no sense in being greedy and looking a gift horse in the mouth with rates already so low.
But things like Brexit don’t just go away in a few days. We might be seeing a kind of dead cat bounce, where after some pronounced selling things bounce back for a day or two before trending even lower.
I wouldn’t be surprised to see that given the potential magnitude of this decision, coupled with those other things I mentioned.
The trend seems to be uncertain and that should mean lower rates ahead. Heck, even if they aren’t lower, they probably won’t move much higher either. So it seems a decent bet to take a wait and see approach.
The only downside here is that you could get hurt by simple timing – if it’s a bad week when you go to lock you could get caught out. So if you’re not a risk taker and like rates where they are, don’t play the game.