Frost Is On The Housing Pumpkin As Home-Loan Rates Hit 7%

The frost is on the pumpkin this Halloween week for thousands of Chicago-area house hunters.

Homeownership continues to drift further and further away as average long-term mortgage rates topped 7% nationwide for the first time in more than two decades.

The action—a direct result of the Federal Reserve Board’s aggressive rate hikes intended to tame soaring inflation numbers not seen in 40 years—is throwing a frosty, wet blanket over Chicago’s once-hot home market.

On October 27th, Freddie Mac’s Primary Mortgage Market Survey, reported that average benchmark 30-year fixed-rate home-loan rates hit 7.08%, up from 6.94% a week earlier. A year ago, 30-year fixed mortgage rates averaged an affordable 3.14%.

“The 30-year fixed-rate mortgage broke 7% for the first time since April of 2002, leading to greater stagnation in the housing market,” said Sam Khater, Freddie Mac’s chief economist.

“As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence,” Khater noted. “In fact, many potential home buyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

The Fed has raised its key benchmark-lending rate five times this year, including three consecutive 0.75 percentage-point increases that have hiked its short-term borrowing charges to a range of 3% to 3.25%, the highest level since 2008.

Forecasters predict that the Fed will boost its key funds rate to 4.4% by year’s end, and up to 4.6% in early 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 8% level by the end of 2022 or early 2023.

On October 27th, Freddie Mac also reported that 15-year fixed mortgages averaged 6.36%, up from 6.23% a week earlier. A year ago, the 15-year fixed loans averaged 2.37%.

Searching for a better deal, borrowers are beginning to flock to more risky adjustable-rate mortgages (ARMs), lenders say.

On October 27th, Freddie Mac reported that rates averaged 5.96% on 5-year Treasury-indexed hybrid ARMs, up from 5.71% a week earlier. A year ago, the 5-year ARM averaged 2.56%.

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who place 20% percent down and have an excellent credit score of 740 or higher.

Bargains still available

Chicago-area borrowers who move quickly still have a faint chance to lock in the following bargain rates as of October 27th, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 5.611% on 30-year loans and 4.950% on 15-year mortgages with 20% down payment and a $615 loan fee.

• Mutual of Omaha was quoting 5.934% on 30-year loans with a 20% down payment and 5.625% on 15-year mortgages with a 20% down payment. Borrowers also will pay a $850 loan fee, plus points, or 0.25% of the loan amount.

Mortgage-rate history

Thirty-year fixed-mortgage interest rates ended 2020 at a rock-bottom 2.65%—the lowest level in the Freddie Mac survey history, which began in 1971.

Home-loan rates set new record lows an amazing 16 times in 2020, and tens of thousands of homeowners refinanced.

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates in the 1960s were not much higher than the Great Depression, when lenders were charging 5% on five-year balloon loans.

Nearly six decades ago, between 1963 and 1965 you could get a mortgage at 5.81% to 5.94%. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6%-to-9% range.

In the early 1980s, run-away inflation caused home-loan rates to skyrocket into the stratosphere. According to Freddie Mac, benchmark 30-year mortgage rates peaked at a jaw-dropping 18.45% in October of 1981 during that Great Recession.

Rates finally fell below 10% in April of 1986, and then bounced in the 9%-to-10% range during the balance of the 1980s. Twenty-three years ago—in August of 1999—when some of today’s Millennial borrowers were still in diapers, lenders were quoting 8.15%.

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.