Thursday's historical 'Brexit' ("British exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union) vote has caused panic and uncertainty in the financial markets. Whenever something like this happens there is an immediate flight to safety. That means that large institutional investors move their money out of stocks and buy bonds. When bonds are in demand, their price goes up and thus their yield or effective interest rate goes down. This is why we saw rates fall between .125-.25% on Friday, June 24th, 2016.
The challenge with the rates falling is that they are near historical lows. Realistically they don’t have much room to go lower. The large institutional investors will get to a point where a return less than 3.5% is just not worth tying their money up and they will look for either higher returns or short term places they can wait for the market to determine when the uncertainty is over.
We have had a sellers’ market all year long with a large amount of buyers, small housing inventories and low interest rates. That being said, the changes made to the mortgage underwriting process after the mortgage crash of 2008 has placed a significant amount of weight on accurate appraisal values. Even with competing offers, buyers offering over list price and houses selling the first day of listing (or even before), the scrutiny in which appraisals are facing will control any potential bubble.
Over the past 90 days I have seen 5-10% of the purchase transactions where the appraised value has been lower than the sales price. This forces either the seller to lower their price or the buyer to pay the difference. In both cases the mortgage industry and the country are protected from a perceived “bubble.” The lender is lending off of the appraised value or the sales price, whichever is lower. Thus they are certain that their risk is appropriate for the loan program that the buyer has chosen. If there is one lesson that the industry learned in 2008 it was that collateral appropriately valued is key. The industry is continuing to hang their hat on that and we will not see the overvaluations that occurred prior to 2008.
One thing to keep in mind though, is that if you purchased your home between January of 2013 and March of 2016 there is a good chance that your interest rate may be higher than the market and with the increase in home valuations that has occurred your equity position may have changed enough to warrant a mortgage fitness checkup. I highly recommend that you reach out to your preferred loan officer and discuss your situation with them.
Please feel free to contact me with questions or for a mortgage fitness checkup.
-Chris Scheer
