Home-Loan Interest Rates Hit Highest Point Since 2009

Tighten your seat belts Chicago home buyers. The mortgage-rate roller coaster may be headed over Mount Everest.

With inflation running rampant and 30-year fixed home loans rising nationwide toward 6% or higher, experts say a cloud is building over the housing market.

On May 5th, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year-fixed home loans across the nation rose a quarter of a point to an average of 5.27%, up from 5.1% a week earlier. A year ago, rates on the popular 30-year loan averaged 2.96%.

Fifteen-year fixed mortgages averaged 4.52%, up from 4.40% a week earlier. A year ago, the 15-year fixed loan averaged 2.30%.

“Mortgage rates resumed their climb this week as the 30-year fixed reached its highest point since 2009,” noted Sam Khater, Freddie Mac’s chief economist. “While housing affordability and inflationary pressures pose challenges for potential buyers, house-price growth will continue but is expected to decelerate in the coming months.”

The mortgage-rate roller coaster appears to be speeding uphill toward 6% after the Federal Reserve Board’s half-percentage point rate hike on May 5th, the most aggressive move since 2000. The increase in the key Fed-Funds rate raised it to a range of 0.75% to 1%, the highest point since the pandemic struck two years ago.

Experts forecast that Fed is planning 0.50% to 0.75% increases in its funds rate at its next two meetings, which could easily push benchmark 30-year fixed home loans to 6% or higher.

The Fed’s credit tightening will likely mean higher loan rates for many consumers and businesses over time, including mortgages, credit cards and auto loans.

As a result, the record-low home-loan deals in the upper 2%-range that kept the housing market at full speed over the past two years are now a faded memory.

Economist say projections released by the policy-setting Federal Open Markets Committee signal the likelihood of the Fed raising rates several more times this year, in an effort to control inflation, which hit 6.6% last months—the highest point in four decades. That scenario would push the Fed Funds rate 1.75% or higher by the end of this year.

On May 5th, the 10-year Treasury rate—the gauge economists use to forecast 30-year-fixed mortgage interest charges—rose to 3.04% from 2.92%.

This means that benchmark 6%-plus mortgage rates likely are on the very near horizon, especially for borrowers who have a FICO score under 740. If you have a mediocre 650-point credit score expect to pay a sky-high 6.25% today for a 30-year fixed mortgage, lenders said.

If the Fed hikes its rates several more times in 2022, mortgage rates could easily rise to 6.5% or higher by the end of the year.

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home-purchase loans for borrowers who place a 20% down payment and have excellent credit.

While mortgage rates floated near—or below—the 3% bargain range for most of 2021, thousands of Chicago-area homeowners refinanced their loans. Those who sat on the dock not only missed the boat, but the vessel now has sunk into deep waters and is attracting barnacles.

Currently, the Fed faces an economic balancing act—the worst since the early 1990s. If the Fed shifts too quickly, the central bank could roil markets and tip the economy into a deep recession, experts say.

The big worry is the long-range impact of the Russian invasion of the Ukraine, which has sent the cost of fuel, food and metals skyrocketing. This raises economist fears of a 1970-style “stagflation” which would create threats to prices, grown and financial-market stability.

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.

Loan deals still available

However, Chicago-area borrowers who get off the fence still have a faint chance to lock in the following bargain rates as of May 5th, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 4.6% on 30-year loans and 3.95% on 15-year mortgages with 20% down payment and a $615 loan fee.

• Liberty Bank was quoting 4.568% on a 30-year loan and 3.625% on a 15-year mortgage with 20% down and a loan fee of $646.

• Mutual of Omaha was quoting 5.166% on 30-year loans and 4.625% on 15-year mortgages with a 20% down payment and a $850 loan fee.

Mortgage-rate history

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. Nearly 23 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.