Brexit will keep U.S. mortgage rates in the basement

At first glance, the decision by U.K. voters to leave the European Union would appear to have little to do with U.S. mortgage rates. Economists, however, are pointing to a powerful though indirect correlation between these seemingly disparate events.

As Bankrate.com Chief Financial Analyst Greg McBride noted, mortgage rates and other types of debt are priced in relation to U.S. Treasurys, which most investors consider to be safe havens. As the popularity of such safe investments surges, Treasury yields plunge. The 10-year U.S. government bond at midday Friday is yielding around 1.54 percent, up a tick after falling further earlier in the day to near a five-year low.

Mortgage rates are tumbling as a result and now are levels not seen since 2013, with a 30-year fixed-rate loan averaging 3.61 percent, just 11 basis points above its record low of 3.51 percent set in December 2012.

"Mortgage shoppers are often beneficiaries of market volatility and uncertainty," said McBride.

Clearly, Brexit is having consequences people who live far from the U.K. as central bankers around the world likely will keep interest rates low amid the resulting economic upheavals. The U.S. Federal Reserve decided to keep interest rates unchanged at its June meeting, and Chair Janet Yellen has indicated that she's not sure when the next hike will come.

That means home borrowers will continue to be find mortgages at rates below 4 percent for the foreseeable future, according to experts.

As Ryan Sweet, an economist at Moody's Analytics noted, U.S. mortgage rates have been at or near record lows for years, but the Brexit influence might "get a few more potential buyers that have been sitting on the fence back into the market."

More homeowners also may refinance to take advantage of the cheap borrowing costs, a move that Bankrate's McBride advises homeowners to consider if they can reduce their rates by a half to three-quarters of a percent.

Overall, the U.S. housing market continues to strengthen.

The closely watched S&P/Case-Schiller Home Price Index rose 5 percent in April, the latest data that's available, and cities such as San Francisco, Portland, Oregon, and Charlotte, North Carolina, have topped the highs that they saw during the housing boom. Most economists, though, don't see signs of a new bubble emerging because credit standards have been tightened in the years since the real estate market collapsed.

"It's not possible [for people] to borrow way beyond their capacity for repayment like they could during the bubble," McBride said.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.