OREANDA-NEWS. US mortgage rates will likely approach all-time lows on increased uncertainty following the UK's vote to exit the EU, according to Fitch Ratings. Low rates are likely to provide support for mortgage origination volume and the US housing market in the short-term, while longer-term economic implications remain difficult to predict.

On Friday, one day after the EU referendum, the benchmark 10-year US Treasury rate fell by roughly 20 bps to 1.56% as investors sought the safety of government bonds. Mortgage rates in the US, currently around 3.5%, are likely to fall further if Treasury yields remain low. The 30-year fixed-rate US mortgage reached an all-time low of 3.31% in November 2012 when the 10-year Treasury rate stood at 1.65%.

The expected dip in mortgage rates will provide incentive for many US homeowners to refinance their outstanding mortgages. Mortgage rates for much of 2014 and parts of 2015 were above 4%, meaning many borrowers could refinance to lower their monthly payments or shorten their loan terms. Strong home price growth in recent years also means refinancing could allow borrowers to tap their built-up home equity.

Persistently low mortgage rates in recent years have provided strong support for the US housing market. Since the start of 2012, home prices have increased 30% nationally and more than 50% in California according to the Corelogic Case-Shiller indices.

However, the rapid growth has outpaced the underlying economic fundamentals in some regions. Fitch estimates major metropolitan statistical areas in California, such as Los Angeles and San Francisco, are 10%-15% overpriced. A further drop in mortgage rates could support momentum in these already overheated areas, increasing the risk of a sharp slowdown or price correction in the future.