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Cloudy Outlook For Housing As Fed Pushes Up Interest Rates

With rising interest rates and run-away inflation underway, the horizon is extremely cloudy for Chicago home buyers and apartment renters.

On September 22nd, the Federal Reserve Board aggressively raised its key funds rate by a hefty 0.75% for the third consecutive time and signaled that more large interest hikes are coming before the end of 2022.

In an effort to cool inflation to a targeted 2% from the current 8.3%, the Fed boosted its benchmark short term funds rate to a range of 3% to 3.25%—the highest level since early 2008.

The move immediately pushed benchmark 30-year-fixed mortgage rates to an average of 6.29% nationwide from 6.2% a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey. A year ago, 30-year fixed loans averaged only 2.88%.

“The housing market continues to face headwinds as mortgage rates increased again,” said Sam Khater, Freddie Mac’s chief economist.

This new hike pushed the 10-year Treasury rate—the gauge economists use to forecast 30-year-fixed mortgage interest charges—to 3.71%, its highest level since 2011.

Forecasters predict that the Fed will boost its benchmark funds rate to 4.4% by year’s end, and up to 4.6% in 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 7% level by the end of 2022.

By earlier interest-rate standards, that still could be considered affordable. In 1994, when this writer launched The Home Front column in the Pioneer Press newspapers, benchmark 30-year fixed mortgage rates averaged 8.75% and were inching toward 9%.

Twenty-eight years ago, home buyers needed an income of $46,200 to qualify for a $100,000 home loan on a typical $125,000 house with a monthly payment of $1,078.

Today, a borrower who places a 20% down payment and takes out a 30-year fixed rate loan of $300,000 at 6% interest this week would make a monthly principal and interest payment of about $1,800.

“Impacted by higher rates, house prices are softening, and home sales have decreased. But despite this decrease in sales, the number of homes for sale remains well below normal levels,” Khater said.

Fifteen-year fixed-rate mortgages rose to an average of 5.44% nationwide on September 22nd from 5.21% a week earlier, Freddie Mac reported. A year ago, the 15-year fixed loan averaged only 2.15%.

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have a FICO score of 740. Borrowers with lower credit scores will pay a higher interest rate.

Landlords feel the pinch

Apartment owners also are feeling the pinch of creeping inflation and soaring real estate taxes. And, those forces are causing rents to rise.

“What this means for real estate investors is that debt is becoming very expensive very quickly,” said Veena Jetti, founder of Vive Funds, a national real estate investment firm. “To keep asset values high, rental prices are continuing to steadily increase in our core markets.”

In Chicago, annual rent increases currently average 4.5% in North Side walk-up buildings. However, pandemic “catch up hikes” of up to 20% have occurred in posh downtown high-rises, experts say.

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


“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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