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The Home Front
The Fed’s aggressive rate hikes, intended to tame soaring inflation not seen in 40 years, is throwing a frosty, wet blanket over Chicago’s once-hot home market.

30-Oct-22 – The frost is on the pumpkin this Halloween week for thousands of Chicago-area house hunters. Homeownership continues to drift further and further away as average long-term mortgage rates topped seven percent nationwide for the first time in more than two decades. The action is a direct result of the Federal Reserve’s aggressive rate hikes intended to tame soaring inflation numbers not seen in 40 years.

On October 27, Freddie Mac’s Primary Mortgage Market Survey reported that average benchmark 30-year fixed-rate home loan rates hit 7.08 percent, up from 6.94 percent a week earlier. A year ago, 30-year fixed mortgage rates averaged an affordable 3.14 percent.

Sam Khater

“The 30-year fixed-rate mortgage broke seven percent for the first time since April of 2002, leading to greater stagnation in the housing market,” said Sam Khater (left), Freddie Mac’s chief economist. “As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence.”

“In fact, many potential home buyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward,” Khater said.

The Fed has raised its key benchmark lending rate five times this year, including three consecutive 0.75 percentage point increases that have hiked its short-term borrowing charges to a range of 3 to 3.25 percent, the highest level since 2008.

Forecasters predict that the Fed will boost its key funds rate to 4.4 percent by year’s end, and up to 4.6 percent in early 2023. That would be the highest level since 2007. Based on these moves by the Fed, mortgage analysts say 30-year fixed home loans easily could reach – or surpass – the 8 percent level by the end of 2022 or early 2023.

Freddie Mac

Fifteen-year fixed mortgages averaged 6.36 percent, reported Freddie Mac on October 27, up from 6.23 percent a week earlier. A year ago, the 15-year fixed loans averaged 2.37 percent.

Searching for a better deal, borrowers are beginning to flock to riskier adjustable-rate mortgages (ARMs), lenders say.

Freddie Mac also said on October 27 that rates averaged 5.96 percent on five-year Treasury-indexed hybrid ARMs, up from 5.71 percent a week earlier. A year ago, the five-year ARM averaged 2.56 percent. The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who place 20 percent down and have an excellent credit score of 740 or higher.

Bargains still available

Chicago-area borrowers who move quickly still have a faint chance to lock in the following bargain rates as of October 27, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 5.611 percent on 30-year loans and 4.950 percent on 15-year mortgages with 20 percent down payment and a $615 loan fee.

• Mutual of Omaha was quoting 5.934 percent on 30-year loans with a 20 percent down payment and 5.625 percent on 15-year mortgages with a 20 percent down payment. Borrowers also will pay a $850 loan fee, plus points, or 0.25 percent of the loan amount.