Home >> Daily Dose >> Could Homebuyers Benefit From Global Uncertainty?
Print This Post Print This Post

Could Homebuyers Benefit From Global Uncertainty?

fcd1aa2d-5b26-4754-ab6b-8342360620f8

Analysis from First American Financial Corporation says global uncertainty—such as the conflict between the U.S. and Iran—impacts not only geopolitical relations but also the U.S. Housing Market. 

“When global investors sense increased uncertainty, there is a “flight to safety” in U.S. Treasury bonds, which causes their price to go up, and their yield to go down—U.S. home buyers benefit from this dynamic,” said Mark Fleming, Chief Economist at First American. 

Fleming said the 30-year fixed-rate mortgage follows the 10-year Treasury bond. Since the end of the recession, the 30-year fixed-rate mortgage remained 1.7 percentage points higher than the 10-year Treasury yield. 

He added that if this trend continues, and the 10-year Treasury yield dips to 1.5% due to uncertainty and a global “flight to safety,” then the 30-year fixed-rate mortgage could fall as low as 3.2%. 

“The 30-year, fixed-rate mortgage fell to its lowest level in a month in response to the decline in the 10-year treasury yield on the morning after the U.S. airstrike in Iran,” Fleming said. 

First American reported that the second-largest shift in the 30-year fixed-rate mortgage since the end of the Great Recession occurred following the 2016 Presidential election. 

Mortgage rates increased to 3.94% from 3.57% the week after the election. A few months earlier, the U.S. Treasury bond yield declined by 0.29 percentage points and mortgage rates fell 0.29 percentage points in the weeks that followed the “Brexit” vote in June 2016. 

“More recently, the decline in mortgage rates since the beginning of 2019 has been partly due to uncertainty around the outcome of U.S.-China trade relations, including the largest single-week decline in the mortgage rate (0.22 percentage points) since the end of the Great Recession in March 2019,” Fleming said. 

First American’s Real House Price Index from October 2018 found that the 10-year Treasury yield was 1.7% and the 30-year fixed-rate mortgage was 3.7%. 

With an average national household income of nearly $66,400, consumer house-buying power, the combination of one’s income, and the prevailing mortgage rate was $418,000.

Fleming said that even a small change in the 10-year Treasury yield—even a small drop of 1.6%—would bring a mortgage rate of 3.3%. 

“Assuming no change in household income, that would mean a house-buying power gain of $21,000, a five percent increase. Amid uncertainty, the house-buying power of U.S. consumers can benefit significantly,” he said.

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.
x

Check Also

Roostify Expands Relationship With Optimal Blue

Roostify has leveraged Optimal Blue’s product eligibility and pricing (PPE) technology to support lead generation efforts since 2016.

GET THE NEWS YOU NEED, WHEN YOU NEED IT.

With daily content from MReport, you’ll never miss another important headline in originations, lending, or servicing. Subscribe to MDaily to begin receiving a complimentary daily email containing the top mortgage news and market information.