By Don DeBat

17-Sep-23 – Those 7 percent-plus mortgage interest rates – a 22-year high nationwide – really shot a torpedo into the confidence of Chicago home buyers in August.

Just when home buyers were getting adjusted to 6.5 percent mortgage interest rates, the Federal Reserve pushed the button to nudge the rates into the 7 percent-plus range.

All this negative home loan news had a downward impact on home sales in the key North Side neighborhoods of Gold Coast, Lakeview, Lincoln Park, Near North, North Center, and Old Town, reported Baird & Warner’s Chicago September Market Analysis, authored by John Irwin and Jackie Lafferty.

The Baird & Warner report, titled Push Forward vs. Push Back, outlined the tug-of-war going on in today’s North Side residential resale real estate market. Here are a few of the report highlights:

• Interest rates. Apparently, nervous would-be home buyers are at a crossroads because of mortgage rate creep.

On September 14, benchmark 30-year fixed home loan rates rose to an average of 7.18 percent nationwide from 7.12 percent a week earlier, reported the Freddie Mac Primary Mortgage Market Survey. A year ago at this time, lenders were charging an average of 6.02 percent on a 30-year fixed mortgage.

The 15-year fixed loan average on September 14 was 6.51 percent, down from 6.52 percent a week earlier. A year ago, lenders were charging 5.21 percent on 15-year fixed mortgages.

“Mortgage rates inched back up last week and remained anchored north of 7 percent,” said Sam Khater, Freddie Mac’s Chief Economist. “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated.”

• Home sales. August was the 18th consecutive month of home sales activity decline in the key half-dozen neighborhoods analyzed by Baird & Warner. However, the good news is the reported home sales declines were only 6.7 percent – the single-digit drop was the lowest since April 2022.

• Price appreciation. More good news. For the fifth consecutive month, home resale prices increased. The uptick in August was 3.2 percent compared with August 2022. Year-to-date median prices are running 0.6 percent ahead of 2022.

“Despite multiple offers, low market times, and a shortage of inventory, prices are fairly stable,” noted Irwin (left).

• Transfer tax. Treading heavy political waters, Mayor Brandon Johnson is beginning to realize he has to compromise with powerful real estate interests on the controversial “Mansion Tax.”

The mayor has proposed lowering the transfer tax on homes priced under $1 million. However, the tax proposal would significantly increase the tax on homes priced between $1 million and $2 million. Homes priced at more than $2 million would be hammered with a quadruple transfer tax. This could cause an exodus of wealthy home buyers to the suburbs.

• Crime. The city reports that violent crime in Chicago is decreasing, but the perceptions of home buyers are the opposite. Many say they are opting to move to the suburbs to avoid carjackings, muggings, and street crime.

Mortgage-hunting advice

Freddie Mac’s Khater advised would-be home buyers to shop around for the best interest rate quote.

“Freddie Mac research suggests home buyers can save $600 to $1,200 a year by applying for mortgages at multiple lenders,” said Khater (right).

For example, on September 14, First Bank of Hegewisch was quoting 6.723 percent on a 30-year fixed mortgage for borrowers who place a 20-percent down payment, and pay a loan fee of $615, according to RateSeeker.com.

Mutual of Omaha was quoting 6.944 percent on 30-year fixed mortgages with 20 percent down and a loan fee of $850. The rate on a 15-year fixed loan was 6.5 percent with a 5 percent down payment and a fee of $850.