All Eyes on Greece



The islands of Greece may look peaceful, but the current negotiations with the Greek government and its Euro zone partners are anything but peaceful. The outcome will impact all of the world’s financial markets.


The Dow ended at its 2015 low on Monday with fears of a Greek default brewing. Credit default swaps are anticipating a 75% chance of a Greek default. Greek creditors (the International Monetary Fund, the European Central Bank, and the EU) drew a line in the sand last week and are now waiting for Greece to respond.

Why am I talking about this? Because the events in Greece will most likely impact mortgage rates. Here’s how:

  • As the talks break down and we move closer to a default or even an exist from the Euro (commonly referred to as “Grexit”), financial markets all over the world will begin to lose value. This is already happening in the European and Asian financial markets. The Dow hit its 2015 low on Monday (although it has recovered some today).
  • Also expect the value of the Euro to continue to decline. A year ago, a Euro was worth €1.36 to $1.00. Now it is down to €1.12. The value will move closer to a 1:1 ratio as worries grow over a default/Grexit.
  • When all of this happens, where does the world turn to for a safer return on investment? For now, it continues to be the US Dollar. Money will move out of stocks and foreign markets and into US Bonds and Mortgage Back Security (MBS) Bonds. As the value of MBS Bonds goes up, rates go down.

We’ve seen this happen previously with the Greek debacle. Last year, the Federal Reserve ended their tapering plan and are now out of the MBS Bond buying business. Financial analysts expected interest rates to rise in 2014. Well, we all know rates improved. Part of the reason was the process described above. Fears of a Greek default helped to improve MBS Bond prices, and interest rates got lower.

Will we see a similar impact this time? We’ll find out soon enough. If another potential default is avoided (again), maybe rates get worse as the financial markets love even the impression of stability/no default. That said, the closer we get to a default, the more likely we will see an improvement in interest rates.

Let’s see how the rest of the month unfolds. Next up is the Thursday meeting between the Greek government and their creditors. That meeting will set the tone for the rest of June.

If rates do improve, my clients can look to take advantage of it with a free float down on their locked rate. Want to know more about a float down on a locked rate? Contact me today. If buying a home in the state of Georgia, we can lock your rate to ensure it does not get worse, but also look to float it down should rates improve.



Tags: , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: