Homeowners Are Sitting On A Cash Station As Prices Rise

Apr 11, 2022

If you are a long-time Chicago homeowner, chances are good that you are sitting on a cash station.

Chicago-area single-family home prices rose by 12.5% in January compared with January of 2021, according to a new report by the S&P CoreLogic Case-Shiller Indices.

The January, 2022 increase for Chicago was larger than the last four months of 2021, which posted price hikes ranging from 11.5% to 12.2%, compared with the same month a year earlier, reported Case-Shiller.

Home prices in the Chicago area have risen at an annual rate of more than 10% for nine consecutive months—their strongest run-up in at least three decades—according to Case-Shiller, which archives price data back to 1988.

During the housing boom of the early 2000s, home prices rose in the 9% range for 13 months. However, prices rose to the 10% level only once—April of 2005.

In late 2013 and early 2014, when the housing market was recovering from the Great Recession, home prices rose by double digits for seven consecutive months, Case-Shiller reported.

Booming prices and a shortage of for-sale home listings in 2022 is good news for existing homeowners with rising home equity. They have three choices:

Sell now and move. With home prices at the highest level in three decades now is the perfect time to retire, head south to a warmer climate, and benefit from a lower-priced market there.
Do a cash out refinance. Although interest rates have risen over the past three months, they still are low by historical standards. Why not go for a 15-year fixed refinance mortgage at the current 3.91% rate. Then, pull out $100,000 of home-equity cash now. Use the money to buy a second getaway home in a warmer climate. Buy a boat, or that exotic sports car you’ve always wanted.
Sit back and grow wealth. The conservative choice is to just sit on your cash-station home and let the money continue to grow as a nest-egg for retirement.

While Chicago’s January home price increase was robust, cities nationwide posted price increases of 19.2%. Among the nation’s 20 largest cities tracked by Case-Shiller, Phoenix leads the U.S. with a 32.6% home-price increase. Prices in the hot Phoenix market have risen for 32 consecutive months.

In January, five other cities posted home-price increases double that of Chicago. Tampa spiked 30.8%, Miami rose 28%, Dallas, 27.3%, San Diego, 27.1% and Las Vegas, 26.2%, reported Case-Shiller.

Only two cities had lower price growth than Chicago in January. Minneapolis posted a gain of 11.8%, and in Washington, D.C. home prices rose 11.2%.

Mortgage rates still rising

On April 7th, Freddie Mac’s Primary Mortgage Market Survey reported that the benchmark 30-year fixed home-loan national average hit 4.72%, up from 4.67% a week earlier. A year ago, the popular 30-year fixed mortgage averaged 3.13%.

Freddie Mac reported that 15-year fixed mortgages averaged 3.91% nationwide on April 7th, up from 3.83% a week earlier. A year ago, 15-year fixed loans averaged 2.42%.

“Mortgage rates have increased 1.5 percentage points over the last three months alone, the fastest three-month rise since May of 1994,” said Sam Khater, Freddie Mac’s chief economist. “The increase in mortgage rates has softened purchase activity because the monthly payment for those looking to buy a home has risen by at least 20% from a year ago.”

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

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.