With recent Brexit upheaval and stock market losses, the U.S. real estate market appears to be on more solid footing in 2016, according to this MarketWatch article by Daniel Goldstein.
While global uncertainty spreads and stocks fall worldwide in the aftermath of the British referendum to leave the European Union, it doesn’t necessarily mean déjà vu all over again, at least when it comes to a repeat of the real estate plunge of 2007. The crash that began that year accelerated sharply following the 2008 rout of the equities market, when home prices in late 2011 were down more than 20% from their peak in spring of 2007.
“There is a lot of Brexit panic going on,” said Francis Greenburger, chief executive of Time Equities Inc., a real estate development firm in New York. “When you realize that this is going to play out over years, and nothing substantive is going to change in the short term, it seems like an overreaction,” he said.
As a result, here’s why you shouldn’t be panicking post-Brexit if you’re looking to buy or sell a home:
Interest rates should stay low, and could go even lower.
And as markets reel post-Brexit vote, the pace of further Federal Reserve rate increases is likely to slow further, according to Kevin Finkel, senior vice president of Resource America Inc. REXI, +0.31% , a real-estate investment trust in Philadelphia.
“If the Fed had a decision to make to raise interest rates, it gets pushed back further now,” he said. “The slower growth in Europe that Brexit will likely cause and the worldwide global slowdown as a result will force the Feds to drag their feet.”
The Fed was already considering holding off on a summer rate increase when the news was announced earlier this month that the U.S. created just 38,000 new jobs in May and nearly half a million people dropped out of the labor force, raising doubts about the strength of the economy.
“The chances are the Fed is reading the (Brexit) signs as being negative to growth and activity,” said Time Equities’ Greenburger. “As long as inflation remains in check, the Fed is going keep their powder dry and leave rates as they are,” he said.
The 10-year Treasury, which mortgage rates follow, fell as much as 20 basis points since the results of the Brexit vote were announced. For someone in the market for a $200,000 home, the pre-vote rate of 3.46% would have cost $715 for a 30-year fixed-rate mortgage with a 20% down payment, according to Zillow’s mortgage group. A 20 basis point drop would make that monthly cost $697.
There’s less risk of a new mortgage bubble
The percentage of loans in foreclosure nationally is the lowest level since April of 2007, according to Black Knight. Foreclosures reached a peak of 4.6% in 2011 at the height of the real estate bust. This year, just 575,000 homes were in active foreclosure in May, down from 800,000 a year ago, a 29% drop, according to Black Knight. While new foreclosures starts last month of 62,100 were up slightly from a 10-year low set in April, they are still 20% lower than a year ago, Black Knight said.
“The recent rise in bank repossessions represents banks flushing out old distress rather than new distress being pushed into the pipeline,” said Daren Blomquist, vice president of Irvine, Calif.- based RealtyTrac, a real-estate research company.
Unlike the 2005 to 2012 mortgage meltdown, when so-called liar loans and exploding ARM’s flooded the market, the subsequent pullback in credit may have been overly tight, but it does mean in 2016 there are fewer real estate bubbles waiting to pop. While it’s true there are markets that have seen incredibly inflated real-estate values such as San Francisco and New York, it’s not fueled by unsustainable and loose credit standards.
Help for first-time home buyers
In 2014, the Federal Housing Administration began reducing mortgage insurance premiums on loans by an average of $900 a year, in an effort to nudge first-time home buyers and millennial borrowers who might not have much cash for a down payment to finally enter the housing market.
Those other federal moves include Fannie Mae and Freddie Mac making lower down payment loan options available to more borrowers. In 2014, the agencies began to buy loans with just a 3% down payment, or 97% loan-to-value ratio. Fannie Mae also announced in 2015 that it would allow income from a non-borrower household members to be considered as part of a loan applicant’s debt-to-income ratio. That could help some borrowers, who might have family members on Social Security or disability living with them, or a renter in a basement apartment, to boost their income levels and help them qualify for a loan.
[Read the full article: Here’s what Brexit will do to U.S. real estate prices]
