The immediate response of Great Britain’s referendum to exit from the European Union was one of anxiety and fear. Some thought the separation would set off a global recession, matching the financial crisis of 2008. While others believed it would be a blip on the financial radar. Of course, the housing industry is watching to see how if the aftermath of the Brexit will affect home buyers and sellers. And it looks as if Brexit benefits US housing.
If you remember, last summer’s US market gyrations were attributed to China’s stock market declines. As a result, many home buyers who relied on their 401k’s (or other investments) for their down payments had to make other plans. Some were unable to buy. At that time, the National Association of Realtors® reported a decline in last August’s existing home sales, only to rebound in September (realtor.org). Will the aftermath of last week’s Brexit have a similar effect? Or maybe Brexit benefits US housing.
Some expect that British home prices will fall as a result of the Brexit, which could affect our housing market. Foreign home buyer investment in US housing will withdraw as foreign cash will look to the UK for housing bargains. This will most likely affect the luxury home sector of the market, where many foreign home buyers have parked their money.
In the meantime, initial reactions indicate that the Brexit benefits US housing! AnnaMaria Andriotis, writing for The Wall Street Journal (Mortgage Rates: How Low Can They Go?; wsj.com; June 28,2016) reported that mortgage interest rates may go lower as a result of the Brexit. Lower interest rates could make housing more affordable for home buyers, while home owners continue to have opportunities to lower their mortgage payments.
The housing market has already been brisk. The NAR reported on June 22nd that existing home sales increased to its highest levels in nine years! Additionally, the S&P/Case-Shiller Home Price Index (spindices.com) reported June 28th revealed an additional 5% year-over-year increase for April 2016.
NAR chief economist Lawrence Yun concluded that low mortgage rates are an incentive for many home buyers. Although he stated that first time home buyers are finding it difficult to enter the market for various reasons, repeat home buyers make up the majority of home sales. As home prices increase, many repeat home buyers are finding down payment funds in the form of the proceeds of their home sales.
Yun felt that first time home buyers may find that increasing home prices will be a continuing obstacle. This is compounded by the enduring low housing inventory. However, new home construction may add other options for home buyers.
Aside from the interest rate benefit to home buyers, mortgage lenders are finding new programs to help those with little down payment funds! Of course, the venerable FHA mortgage has been the go-to mortgage for those who qualify, because the down payment can be as low as 3.5%. The downside to the FHA mortgage is the mortgage insurance premium. To compete, Fannie Mae and Freddie Mac offer a 3% down payment program to those who qualify. Like its FHA counterpart, the conventional 3% down payment program has also required private mortgage insurance.
However, HousingWire (hosuingwire.com) has reported that a few lenders offer a 3% down payment mortgage program without the PMI. And within the last seven days, HousingWire reported that Quicken Loans and Guaranteed Rate Mortgage offer a 1% down payment mortgage program to those who qualify!
By Dan Krell
Copyright © 2016
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