CINCINNATI -- Brexit certainly shocked and surprised, but it could ultimately benefit some Cincinnati homebuyers in 2016.
Those on the house hunt could see reduced mortgage interest rates for the remainder of the year, thanks in part to the United Kingdom's emerging separation from the European Union. But any boosts in buying power may be hampered by low inventory levels currently plaguing the local real estate market.
The current rate for a 30-year fixed-rate mortgage is hovering around 3.5 percent — mid to high 3's, based on credit — said Ryan Kiefer, branch manager at PrimeLending in Hyde Park. Brexit brought those numbers down slightly as stocks gyrated in the aftermath of Britain's June referendum. Since most economists predict rates will jump back to 4.0 percent or higher by this time next year — and with home prices on the rise here — it means now is still a good time to buy.
"It's been a very good year for the purchase market, very healthy, with record numbers for a lot of banks and local real estate firms in that regard," Kiefer said. "And the general consensus is rates continue to go lower. I don't know if there's been a better time to buy."
In short, here's what has happened:
On June 23, British voters approved a referendum to exit the EU amid economic dysfunction and an immigration crisis. The move roiled markets, and the pound fell to its lowest level in decades.
And when stocks tumble, more investors opt for U.S. Treasury bonds instead — few assets are safer, they say. That pushes up bond prices but drives down their yields. Tuesday, for instance, the U.S. 10-year Treasury yield closed at a record low. Mortgage rates usually follow in lockstep, meaning ultra-low mortgage rates for American households.
The Fed, which in December raised its interest rate for the first time since the recession and had signaled more hikes to follow, is also in a holding pattern.
"It's just the fear of the unknown," Kiefer said. "It's the initial knee-jerk reaction. Money blows into the bond market, and that, in turn, lowers rates. We saw rates dip down a little bit, maybe not as much as some in the media would lead you to believe, but we're within a quarter point, I'd say, of the all-time lows we saw back in the fall of 2012."
It's unclear how Brexit will play out over the long term, but homebuyers could continue to see a drop in rates over the next few months as things play out, he said. British Prime Minister David Cameron, for one, has said he will step down, the actual legal process to officially disentangle the U.K. has yet to begin. And other countries could follow suit. There's a push now, for example, for the Netherlands to "Nexit."
"If this continues to happen with more countries, you could certainly see some shock to the financial market," Kiefer said. "(Rates) could certainly drop further. It's slowly playing out over time. It's going to take awhile for all of this to unravel. Probably over the next year or two at least."
On the ground level, Patti Stehlin, chief operating officer at Star One Realty and president of the Cincinnati Area Board of Realtors, says it's "business as usual" for both buyers and sellers. Brexit hasn't ushered in a huge rush of buyers. The bigger story line, it seems, is still lack of inventory, which is at reduced levels Stehlin's "never before seen."
"Inventory is the real problem," Kiefer also noted. "There's just not enough."
"This is probably the new norm," Stehlin said. "It's tough for buyers because they don't have a lot of time to make decisions; the good houses go before you can even get back to the office to write up an offer. But per everybody I've talked to, it's still the typical summer market. There are more buyers than sellers, so if any seller is on the fence, now is a good time to get up and list."
Locally, homes continue to appreciate about 5 percent a year, meaning any hike in interest rates could significantly reduce a buyer's purchasing power – around 10 percent for every three-quarters of a percent swing.
Most economists predict rates for a 30-year fixed-rate mortgage could jump to 4.0-4.5 percent — or higher — by this time next year, Kiefer said.
"But of course they've been predicting that for the last three years in a row," he added. "That hasn't happened."