International concerns such as slowing growth in China and the Brexit vote in the U.K. played a major role in driving down mortgage rates in the U.S., according to Freddie Mac’s monthly Outlook for July.
In fact, after the U.K’s vote to leave the European Union, mortgage rates continue to lower, closing the gap even more to all-time lows at 3.41%.
This is likely to result in a boost in housing activity, particularly refinance, as homeowners take advantage of the current low rates, according to Freddie Mac’s report.
"With the U.K.'s decision to exit from the European Union, global risks increased substantially leading us to revise our views for the remainder of 2016 and all of 2017,” Freddie Mac Chief Economist Sean Becketti said.
“Nonetheless, the turbulence abroad should continue to create demand for U.S. Treasuries and keep mortgage rates near historic lows,” Becketti said. “Thereby, allowing home sales to have their best year in a decade, along with a boost in refinance activity."
The remaining quarters of 2016 should show an increase in Gross Domestic Product at 1.9% and 2.2% in 2016 and 2017.
Due to these recent global pressures, Freddie Mac revised the 30-year fixed-rate mortgage forecast down by 30 basis points for 2016 and by 50 basis points for 2017 to 3.6% and 4% respectively.
With this new drop in mortgage rates, the refinance share of originations will rise by 49% in 2016, an increase of 8% from last month’s forecast. That will be an increase of $100 billion in originations, bringing the total to $1,825 billion.
Because of June’s employment report that resulted in a large improvement from May’s report, unemployment will average 4.9% in 2016 and 4.8% in 2017, Freddie Mac predicted.
The home price appreciation forecast for 2016 remains at 5% in 2016 and 4% in 2017.