Brexit Brings Upswing In Mortgage Originations

The effects of last month’s vote by the U.K. to leave the European Union are starting to take hold in the U.S. mortgage market, where cautious (but definitive) optimism has sparked the refinancing sector.

The July 2016 Economic and Housing Outlook report by Fannie Mae’s Economic & Strategic Research (ESR) Group showed an upswing in predicted mortgage originations that flipped an expected 2.8 percent drop throughout the rest of this year to a 2.2 percent expected growth.

It would be premature to expect too much, however.

“Brexit’s economic impact on the U.S. will likely be limited, especially from a trade perspective, and should be a near-term positive for the housing and mortgage market as falling mortgage rates have prompted new refinance demand,” said Doug Duncan, chief economist at Fannie Mae.

Duncan said that financial volatility resulting from Brexit has created “some uncertainty among investors as yields on government bonds have dropped sharply, Treasury yield curves have flattened over the past month, and the Chinese Yuan has depreciated to a six-year low against the dollar.”

Overall, Fannie Mae’s economic growth outlook for the second half of the year remains unchanged from the prior forecast, at about 2 percent. ESR reiterated Fannie Mae’s view that interest rates will likely remain where they are until next June, and it also expects consumer spending to drive growth for the rest of 2016, as businesses “face headwinds from shrinking profits, weak productivity, and rising labor costs in the face of uncertainty stemming from Brexit and the U.S. presidential election.”

Government spending and residential investment should be positive contributors to economic growth this year, the report found. However, nonresidential and inventory investment and net exports are expected to drag on growth. And although job creation picked up at the end of the second quarter, the hiring trend has slowed considerably from the start of the year.

“We still expect moderate housing expansion for 2016,” Duncan said. “While new home sales have pulled back from their expansion-best, existing home sales rose to the highest level in more than nine years amid the largest year-over-year drop in for-sale inventory since October. Without relief from new construction, housing inventory will likely remain tight, boosting home prices and constraining affordability.”