Eurodrama drives safe-haven trade

Last Week in Review: Eurodrama drives “safe-haven” trade.

The long-awaited Brexit agreement was dealt a big blow this past Thursday when two top Brexit officials and four Jr Ministers quit – citing the deal Prime Minister Theresa May reached with the EU was no good.

What does it mean for housing?

The U.S. Dollar, U.S. Bonds and home loan rates benefitted from the Brexit chaos as global investors parked their money in the relative safety of U.S. Dollar denominated assets (currency and Bonds) in what is called a “safe-haven” trade.

The U.S. Dollar had already been rising in value versus other global currencies and there are a couple of effects worth following:

  1. A strong U.S. Dollar tamps down inflation as it lowers commodity prices like oil. Have you noticed the recent price decline of gas at the pump? This is like a tax cut for the consumer looking to purchase a home.
  2. It makes U.S. imports cheaper. This along with lower oil keeps inflation down, which is good for long-term rates like mortgages.
  3. If the U.S. dollar strengthens further, the Fed may not raise rates as expected in 2019 because more hikes would further suppress inflation, which is already tame – again, good for home loan rates.

Bottom line – rates have improved from the worst levels of the year and it is quite possible that the highest rates of the year are behind us.

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