Buyers Should Forgo Holiday Cheer—Hunt For A Home And Mortgage Now

Prospective buyers should forget about celebrating holiday cheer and start home-hunt and mortgage shopping now to lock in the best late 2018 loan deals.

Housing experts say now may be the best time in months to buy a home or condominium at a good price and finance it with a loan carrying an interest rate under 4.75% because of Federal Reserve Board chairman Jerome Powell’s short-term rosy outlook on interest rates.

Powell said the Fed’s path of gradual interest-rate increases since 2015 is a balancing act to deal with economic risks. The Fed has increased interest rates three times in 2018, and had indicated that three hikes were planned in 2019 and one more in 2020, ultimately pushing its benchmark federal-funds rate to a range of 3.25% and 3.5%. This scenario could push 30-year fixed home loan interest rates to 6.5% to 7% by 2020, experts predict.

“We know that moving too fast would risk shortening the expansion, Powell said. “We also know that moving too slowly—keeping interest rates too low for too long—could risk other distortions in the form of higher inflation or destabilizing financial imbalances.”

Powell also indicated that the economic effects of the Fed’s gradual rate increases are uncertain and “may take a year or more to be fully realized.”

Analysts said Powell’s mild forecast likely could mean a pause in Fed-rate increases, and good news for holiday-season home buyers who shop between now and the Super Bowl in early February.

On November 29th, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loan interest rates held stable at an average of 4.81% percent—unchanged from a week earlier. A year ago, the 30-year fixed averaged 3.90%.

Chicago-area lenders were charging a range of 4.57% to 4.863% on 30-year fixed rate mortgages on November 29th, reported rateSeeker.com.

“Mortgage rates stabilized the last couple of months as interest-rate sensitive sectors such as new auto and home sales have clearly softened the outlook for the economy,” noted Sam Khater, Freddie Mac’s chief economist.

“Home buyers pounced on the stability in rates as purchase mortgage applications increased, which indicates that despite higher loan rates this year there are buyers on the fence waiting for the right time to buy,” Khater said.

Home sales activity and home prices in the Chicago area and across northern Illinois usually peak in June and hit an annual low point in January and February.

Over the last 14 years, Chicago-area homes sold in February had a median sales price that averaged 17.8% less than homes sold in June of the same year, reported RE/MAX’s Northern Illinois Region. The difference between the median price in February and in June hit a high of 33.1% in 2013 and a low of 6.7% in 2008. This year the spread was 13.2%.

“In the Midwest, homes that go under contract in November, December and January usually are offered by highly motivated sellers,” explained Jeff LaGrange, vice president of the RE/MAX Northern Illinois.

“In spring and summer, purchasers may pay a premium because they compete with many other buyers,” LaGrange said. “Less competition in winter means prices typically don’t include that premium, and sellers frequently are more flexible about price and other terms.” That doesn’t mean the price of every home on the market will drop by 10% or more just because it’s November, noted LaGrange.

“What we find instead is that list prices often are more conservative to start with, and sellers may be more willing to negotiate on price and other terms, especially if they are eager to close the sale,” LaGrange said. “But some of the price difference in winter reflects the fact that homes in the best locations and great condition sell quickly and usually aren’t on the market at that time.”

Capturing a wintertime home bargain, however, means dealing with sometimes challenging weather conditions. And, with fewer hours of daylight, it may be necessary to visit more homes after dark, a less than ideal situation.

“When that happens, it makes sense to arrange a daylight visit before making an offer, and that can involve taking time off work, but it’s worth it,” explained Linda Dore, a broker with RE/MAX Synergy in southwest suburban Orland Park.

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.