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Clouds Of Autumn: Rising Mortgage Rates, Affordable Home Shortage

October 1, 2018

Rising mortgage rates, higher home prices and a shortage of affordable dwellings is causing early autumn clouds to form over the Chicago-area housing market.
 

After the Federal Reserve Board on September 26th raised a key interest rate by a quarter of 1 percentage point for the third time this year, mortgage rates surged to their highest level in more than seven years.
 

The Fed lifted its short-term federal funds rate to a range of 2% to 2.25%, the eighth hike since late 2015. The central bank is forecasting one more rate hike in 2018 and three more in 2019.
 

On September 27th, Freddie Mac’s Primary Mortgage Market Survey reported that the benchmark 30-year fixed-rate mortgage average rose for the fifth consecutive week to 4.72%—a high not seen since April 28, 2011 when rates reached 4.78%. A week earlier the 30-year fixed average was 4.65%. A year ago at this time, it averaged 3.83%.
 

On September 28th, Chicago area lenders were charging a range of 4.736% to 4.863% on 30-year fixed-rate mortgages, according to rateSeeker.com. If the Fed continues its current rate-hike policy to manage growth and control inflation, experts say home buyers should expect to pay close to 6% for a mortgage by late 2019.
 

“The robust economy, rising Treasury yields and the anticipation of more short-term rate hikes caused mortgage rates to move up,” explained Sam Khater, Freddie Mac’s chief economist.
 

“Even with these higher borrowing costs, it’s encouraging to see that prospective buyers appear to be having a little more success,” Khater said.  Despite inventory constraints, purchase applications have now trended higher on an annual basis for six straight weeks, he said.  
 

Khater noted: “Consumer confidence is at an 18-year high, and job gains are holding steady. These two factors should keep demand up in coming months, but at the same time, home shoppers will likely deal with even higher mortgage rates.”  
 

In contrast, Illinois Realtors reported that year-over-year single-family home, townhome and condominium sales in Chicago decreased 5.1% with only 2,649 units sold in August, compared with 2,791 units marketed in August a year ago.
 

The median price of a home in Chicago in August rose 0.4% to $285,000 compared with $284,000 in August of 2017. In the nine-county Chicago Metro Area, sales of homes, townhomes and condos totaled 11,545 units in August, down 2.8% from August of 2017 when 11,880 units were sold. The median price in August was $244,000 in the Chicago Metro Area, an increase of 2.1% from $239,000 in August of 2017.
 

An analysis by the RE/MAX Northern Illinois Region, revealed a sales total of 11,421 homes in August, a minimal decline of -0.7% when compared to August 2017, but the results were substantially different for homes selling above or below the $500,000 mark.
 

The number of homes selling for less than $500,000 totaled 9,953 units, which was a -2.6% decline from August of 2017. At the same time, the number of homes selling for $500,000 or more rose by 4.4% to 1,468 units.

 

“Those numbers might suggest that the more expensive segment is the stronger, but we believe the reverse is true,” noted Jeff LaGrange, vice president of RE/MAX Northern Illinois. “Demand for entry-level and moderately priced homes is strong, and sales are being inhibited primarily by a lack of inventory. In the upper brackets, there is ample inventory, and many homes struggle to find buyers.”
 

At the end of August, the inventory of homes priced under $500,000 was 26,405 units, just a 2.6-month supply based on the pace of August sales. Average market time in August for homes selling in that range was 57 days. According to LaGrange, demand is especially strong for homes priced from $150,000 to $300,000.
 

In contrast, at $500,000 and above there was a 6.9-month supply of homes available, and the average August market time was 102 days.
 

Illinois Realtors reported that 16,453 homes, townhomes and condos were sold statewide in August, down 0.2% percent from 16,488 units in August of 2017. The statewide median price in August was $202,150, up 1.1% from August 2017, when the median price was $200,000. The median is a typical market price where half the homes sold for more and half sold for less.
 

Sales and price information are generated by Multiple Listing Service closed sales reported by 27 participating Illinois Realtor local boards and associations including Midwest Real Estate Data LLC data.
 

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.

 

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“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”

 

Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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