Rock-Bottom Mortgage Rates Matched With Record-Low Homeownership

Spurred on by historically low mortgage rates and a recovering job market, the Chicago housing market remains active as the end of the third quarter approaches, experts say.

Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year mortgage rates have ranged between 3.41 percent and 3.48 percent nationwide for 10 consecutive weeks. A year ago at this time, 30-year fixed loans averaged 3.90 percent.

“The 30-year fixed-rate mortgage fell 2 basis points to 3.44 percent on September 8th,” noted Sean Becketti, chief economist for Freddie Mac. Chicago lenders were charging a range of 3.25 percent to 3.61 percent on benchmark 30-year fixed loans.

“Many homeowners are taking advantage of the historically low rates by refinancing,” Becketti said. “Since the Brexit vote, the refinance share of mortgage activity has remained above 60 percent.”

Despite rock-bottom loan interest rates, first-time home buyers and Millennials are not entering the housing market en masse in 2016, analysts say. Once close to 70 percent, the nation’s homeownership rate matched a record-low 62.9 percent in the second quarter of 2016, while apartment occupancy hit a 10-year peak.

While existing home prices continue to rise, sales have slowed because of limited home inventory.

Chicago posted an 11.9 percent year-over-year home sales decrease in July of 2016 with 2,714 sales, down from 3,082 in July of 2015, Illinois Realtors reported. However, the median price of a home in the city of Chicago rose to $290,000 in July, up 1.8 percent compared with $285,000 in July of 2015.

In the nine-county Chicago-area, home and condominium sales in July totaled 11,716 units sold, down 7.3 percent from sales of 12,645 units in July of 2015. The median price was $238,000 in July in the Chicago area, an increase of 5.8 percent from $225,000 in July of 2015.

“In July, median prices continued to experience positive growth while sales recorded their first negative annual change in 2016,” noted Geoffrey J.D. Hewings, an economist at the University of Illinois. “Median prices are forecast to have positive annual growth over the next three months.”

A new report by real estate analysts Marcus & Millichap, noted that steady job creation over the last six years has supported apartment demand, pushing occupied units to an all-time high in the second quarter.

“Newly formed households have favored renting rather than homeownership throughout the growth cycle, reflecting lifestyle changes and barriers to homeownership,” noted the Marcus & Millichap study.

Here are other highlights of the report which was released on September 2nd:

• The U.S. labor market produced a “Goldilocks” moment in August: Hiring was neither too hot nor too cold.

“Modest payroll growth last month reaffirms the sound state of the U.S. labor market and raises questions regarding whether the Federal Reserve Board needs to raise its benchmark interest rate when it meets on September 20-21,” the report said.

• “With scant evidence of any overheating in the economy and minimal inflationary pressures accumulating in prices and wages, the central bank’s intentions to normalize monetary policy will likely be postponed,” Marcus & Millichap predicted.

• “Labor market slack, a factor considered by the Fed in its deliberations, is stable. The unemployment rate and the underemployment rate were unchanged last month at 4.9 percent and 9.7 percent, respectively,” noted the report.

• An average 205,000 jobs per month were created over the past 12 months and the U.S. economy is promoting the creation of new households and stoking new housing demand, Marcus & Millichap noted.

However, many new households are settling in rentals and vacancy in the national apartment sector dipped to 3.8 percent at midyear.

“Elevated completions in some submarkets will place upward pressure on vacancy rates in some metros, but the U.S. rate will likely remain unchanged at 4.2 percent at year-end as demand aligns with supply growth,” the report said.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.