Jun 142016
 

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By G. Steven Bray

Mortgage rates have continued to improve mainly due to global growth concerns. The poster child for that concern right now is the potential exit of Great Britain from the European Union or “Brexit.” Brits vote next week, and the “leave” side is leading in the polls.

I think the threat to the global economy of a Brexit is fairly minor in the short term. Markets are probably overreacting a bit to the notion that if Great Britain exits the EU, others would follow, and the EU could collapse. That scenario would take years to develop.

In our short term, we have a Fed meeting this week. The Fed also is eyeing the Brexit vote, and it’s highly likely the Fed will leave interest rates at current levels tomorrow. However, Fed governors continue to indicate they’re itching to hike rates again and soon. Assuming the effects of the Brexit vote are minimal, look for the Fed to start talking rate hikes again.

So, that leaves us with slight downward pressure on rates until the Brexit vote (or until the polls change). Locking or floating your rate is a reasonable decision at this point, but keep in mind that there is less market inertia for rates to rise than for rates to fall. In particular, if the Brexit vote fails, rates could snap upwards rather quickly.

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