1-Aug-22 – With mortgage rates bouncing up and down like a ping pong ball, Chicago’s beleaguered house hunters still have a slim chance to lock in an affordable home loan during this crazy summer market, experts say.

A hefty 0.75 percent interest rate hike by the Federal Reserve on July 27 pushed the benchmark target rate to a range of 2.25 to 2.50 percent, its highest level since 2018.

However, after the Fed rate hike, mortgage rates surprisingly declined nationwide. On July 28, Freddie Mac’s Primary Mortgage Market Survey reported that average 30-year fixed home loans fell to 5.30 percent from 5.54 percent a week earlier.

At the beginning of July, the 30-year rate floated as high as 5.70 percent, and experts forecasted that 6 percent-plus rates were on the horizon. A year ago the fixed loan rate averaged 2.80 percent. On July 28, rates on 15-year fixed loans averaged 4.58 percent, down from last week when it averaged 4.75 percent. A year ago, the 15-year fixed loan averaged 2.10 percent.

The Freddie Mac survey focuses on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.

On July 28, the 10-year Treasury rate, the gauge economists use to forecast 30-year-fixed mortgage interest charges, declined slightly to 2.74 percent from 2.79 percent. That action likely caused home loan rates to inch lower.

The Fed now is tightening credit even while the economy has begun to slow. Economists say that risky action could cause a recession this year or next.

The Fed’s move follows a whopping 9.1 percent jump in inflation in June, the fastest annual rate in 41 years. By increasing borrowing charges, the Fed makes it more costly to take out a mortgage, auto, or business loan.

The Fed’s game plan is to force Americans to borrow and spend less, thereby slowing inflation and cooling the economy. And the plan appears to be working.

New-home sales nationwide dropped 8.1 percent in June, compared with May, reported the Department of Housing and Urban Development. However, the median price of a new home sold in June skyrocketed to $402,400, compared with a $374,700 median price in June 2021.

“Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices, increased recession risk, and declining consumer confidence are taking a toll on home buyers,” said Sam Khater (left), Freddie Mac’s chief economist. “It’s clear that over the past two years, the combination of the pandemic, record low mortgage rates, and the opportunity to work remotely spurred greater demand.”

“Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes,” said Khater.

Experts say the July 28 mortgage rate drop likely is going to be short-lived, so it represents a narrow window for would-be home buyers who move quickly to lock in a mortgage in the low-5 percent range.

Another worry for summer home shoppers in Chicago is rising asking prices sparked by a shortage of resale home listings. That is creating multiple-bid scenarios which could drive offers even higher.

Affordable loans available

Chicago-area borrowers who move quickly still have a faint chance to lock in the following bargain rates as of July 28, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 4.853 percent on 30-year loans and 4.2 percent on 15-year mortgages with a 20 percent down payment and a $615 loan fee.

• Mutual of Omaha was quoting 4.933 percent on 30-year loans with a 20 percent down payment and 4.625 percent on 15-year mortgages with a 5 percent down payment and a $850 loan fee.