House hunting or looking to refinance? Your window of opportunity is wide open.
4-Aug-19 President Donald Trumps America First trade policies have sparked the Federal Reserve Board to lower interest rates, which could benefit Chicago home buyers and families seeking to refinance.
Trump, who is counting on a strong economy as he campaigns for reelection next year, has pushed the Federal Reserve to immediately start cutting interest rates to undo what he sees as the damage from four unnecessary Fed rate hikes last year.
In an abrupt policy shift on July 31, the Federal Reserve cut its benchmark funds rate by 0.25 percent to a range of 2 to 2.25 percent. It was the first reduction since 2008, when the Fed cut rates to essentially zero in the wake of the Great Recessions financial crisis.
The outlook for the U.S. economy remains favorable, and this action is designed to support that outlook, said Fed Chairman Jerome Powell. It is intended to ensure against downside risks from weak global growth and trade policy uncertainty, and to help offset the effects these factors are currently having on the economy.
(Left) Jerome Powell speaks at The White House on November 2, 2017, after being nominated by President Trump to be Fed Chairman. Photo by Andrea Hanks.
The immediate result of the Fed rate cut was a decline in the 10-year Treasury bond rate to 1.85 percent from 1.89 percent. Experts say the lower 10-year bond rate will put major pressure on long-term home-loan interest rates, eventually resulting in a 0.25 percent decrease.
On August 1, benchmark 30-year fixed mortgage rates averaged 3.75 percent nationwide, unchanged from a week earlier, reported Freddie Macs Primary Mortgage Market Survey. A year ago, the 30-year fixed loan average was 4.60 percent. On August 2, Chicago-area lenders were charging 3.756 to 3.940 percent, reported RateSeeker.
Mortgage rates have essentially stabilized over the last two months, which reflects the recovery and improvement in the economy from the malaise earlier in the year, said Sam Khater (right), Freddie Macs chief economist. Low mortgage rates, a tight labor market, and high consumer confidence should lead to improvement in home sales in late summer and early fall.
An optimistic forecast from the National Association of Home Builders said, The Feds approach is a net positive for future housing demand and home construction.
While additional rate cuts in the near term are not guaranteed, the NAHB forecast includes a prediction for an additional 0.25 percent reduction in the Fed funds rate in late 2019.
So, what do all these numbers mean to prospective house hunters and homeowners seeking to refinance? The window of opportunity for locking in a near record-low 3.5 percent or lower 30-year fixed mortgage rate in late summer and autumn of 2019 is wide open.
A benchmark 3.5 percent rate would be the lowest mortgage rates have hit since November 21, 2012, when they tumbled to a historic rock-bottom of 3.31 percent, reported Freddie Mac.
Interest rate history lesson
Just how affordable is a 3.5 percent or lower mortgage rate? Twenty years ago, in August 1999, when many of todays Millennial borrowers were in grammar school, lenders were quoting 8.15 percent on a 30-year fixed mortgage.
However, to really appreciate todays historically low interest rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging more than three decades ago, in the early 1980s.
According to Freddie Mac, benchmark 30-year mortgage rates peaked at a whopping 18.45 percent in October 1981 during the Great Recession of the 1980s. Rates fell below 10 percent in April 1986 and then bounced in the 9-to-10 percent range during the balance of the 1980s.
Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates were relatively affordable five decades ago at 5.81 to 5.94 percent between 1963 and 1965.
In 1966 and 1967, borrowers paid an average of 6.3 to 6.4 percent. In the 1960s, rates last dipped below 6.5 percent in January 1968, when the national average hit 6.41 percent. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6-to-9.0 percent range.