Neuswanger: Global financial drama could help local homeowners save on mortgage rates (column)
June 6, 2018
It's been said money has a life force of its own. Some compare it to lava flowing from Kilauea; it's going to go where it wants to go.
Recently, money has certainly driven political drama to new heights both in China and Europe. The results have rippled across the globe, and if you're a homeowner or want to be one, then take note of a window of opportunity that has quietly opened.
On the Chinese front, the rhetoric of trade wars has weighed heavily. The off-again/on-again tariffs rhetoric has instilled concerns over a drastic rise in the cost of Chinese-made goods coming into the United States triggering inflation, coupled with a concern about a drastic drop in exports due to Chinese tariffs on many U.S. products. This led to uncertainty in the U.S. stocks and a flight of money into bonds.
On the European side, Italy has a political crisis because the newly elected populist leaders finally admitted they could not form a government and there will be a new round of elections. Investors fear for the stability of the Italian economy and wonder if Italy will exit the European Union. This has contributed to a huge decline in the European stock indexes and a surge in the returns demanded for holding Italian debt, which resulted in billions flowing into the perceived safety of U.S. bond markets, which has been favorable for homeowners.
And to spice things up, the on-again/off-again summit with North Korea has kept investors on their toes. If nuclear tensions rise, then it could bring instability to Asian markets, making U.S. and European economies look better to those vested in Asian equities.
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This inflow of capital to U.S. markets has resulted in a drop in mortgage rates, which had risen sharply in the prior two weeks. How long this will last is anyone's guess.
The Chinese situation seems much more contrived and many have noted that Ivanka Trump's company was granted several Chinese trademarks last week and that was likely an effort to placate President Donald Trump and may make the whole trade war rhetoric go away.
The Italian drama is not contrived, however, and there are very real threats to a lot of financial benchmarks there. The European Central Bank has plenty of liquidity to step in and stabilize the situation, if they want to. But if Italy seems determined to leave the EU (it's being called "Italexit " as it would be similar to "Brexit," when Britain left the EU), then there will be a lot less intervention, and until things settle down, mortgage rates could improve
If you're thinking about a refinance or buying a place, then now is an excellent window of opportunity.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related questions from readers. His website and blog can be found at http://www.mtnmortgageguy.com.
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