Brexit to have Lasting Impact According to Freddie Mac

 

Brexit to have Lasting Impact According to Freddie Mac

The Brexit decision continues to reverberate and Freddie Mac, in its current issue of Outlook sees it as both a plus and a minus for the U.S., and not necessarily a short-lived one.  The company’s economists predict it will raise global risks while keeping domestic mortgage rates near historic lows.  That, in turn, will raise mortgage originations.

Brexit aside for the moment, for the second time in as many months Freddie Mac raised its estimate for the first quarter 2016 Gross Domestic Product (GDP).  Its initial estimate of 0.5 percent growth had previously been revised to 0.8 percent and now to 1.1 percent. Upward revisions to growth in exports and nonresidential fixed investment were primary drivers of the revisions and the report says this newest figure suggests the start of 2016 was not as bad as originally thought.

The expectation for the second quarter is growth of 2.0 percent with consumer spending being instrumental.  That factor had a growth of 1.1 percent in April then normalized in May at 0.4 percent.  Retail sales continue to be strong, growing by 0.5 percent in May. However, building materials sales have declined for three straight months which signals a slowdown in residential investment.

Going forward, Brexit is expected to have a major impact on domestic production.  A slowdown in global growth, especially in Europe will dampen demand for U.S. exports as will an expected increase in the value of the U.S. dollar as foreign investors seek a financial safe haven. The price of riskier assets will also fall somewhat, raising capital costs and delaying investment

All-in-all, Freddie Mac sees the impact of Brexit shaving 10 basis points off of the GDP from the second quarter of 2016 through the end of next year.  After the upward revision to Q1 this will mean this year’s GDP outlook will be unchanged at 1.9 percent and the 10 basis point reduction will shave the 2017 GDP down to 2.2 percent.

The Federal Open Market Committee (FOMC) backed away from raising the fed funds target rate as they were expected to do at their June meeting after a very weak May jobs report. After the results of the Brexit vote on June 24 Freddie Mac anticipates the FOMC “will likely continue to express caution before easing monetary accommodation.”

The Monday after the United Kingdom vote 10-year Treasury rates fell below 1.5 percent for the first time since July 2012 and Freddie’s Primary Mortgage Markets Survey put the 30-year fixed-rate mortgage (FRM) at 3.41 percent this past week, the lowest since May 2, 2013.

In light of this, the company has lowered its 10-year Treasury rate forecast by 40 basis points to 1.8 percent this year and 2.3 percent in 2017.  The outlook for the 30-year FRM has accordingly been reduced by 30 basis points for 2016 to 3.6 percent and by 50 basis points in 2017, to 4.0 percent.

 

Reference Jann Swanson

Jonathan Burdick-Specializes in all loan products and licensed in Arizona

Xperity Lending Group/Arizona Lending Resource

Scottsdale Arizona 85260

602-212-1234

NMLS # 1045837

http://www.ArizonaLending.Net

Fairway Independent Mortgage Company

NMLS Entity ID 2289

Equal Housing Lender

Confidentiality Notice: The information contained in and transmitted with this communication is strictly confidential, is intended only for the use of the intended recipient, and is the property of Fairway Independent Mortgage Corporation NMLS #2289 or its affiliates and subsidiaries. If you are not the intended recipient, you are hereby notified that any use of the information contained in or transmitted with the communication or dissemination, distribution, or copying of this communication is strictly prohibited by law. If you have received this communication in error, please immediately return this communication to the sender and delete the original message and any copy of it in your possession.

 

 

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