Interest-Rate Creep Makes Affordable Home Buying Tough

If you are a prospective home buyer in Chicago, the outlook for locking in an affordable mortgage this spring is fading into the horizon.

The worried eyes of the Federal Reserve Board (Fed) are fixed on “core” inflation, which rose 0.3% from February to March and 4.6% from a year earlier, according to a report from the U.S. Commerce Dept.

Some nervous Fed officials are concerned that core inflation hasn’t declined much since reaching 4.7% last July. So, experts predict that the Fed likely will raise its funds rate at least a quarter of a percentage point to a range of 5% to 5.25% this week.

On April 27th, the Freddie Mac Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans rose to 6.43% from 6.39% a week earlier. A year ago, the popular 30-year fixed loan averaged 5.10%.

Mortgage buyer Freddie Mac also reported that 15-year fixed loans inched lower to 5.71% from an average of 5.76% a week earlier. A year ago, the 15-year fixed loan averaged 4.40%.

Mortgage rates have eased a bit over the past five months. On November 10th, the Freddie Mac survey reported that 30-year fixed-rate home loans nationwide hit an average of 7.08%.

Interest-rate creep isn’t only being felt in the mortgage market. Credit card interest rates also are on the rise. The Annual Percentage Rate (APR) on a typical Citi Bank credit card, which is indexed to the Prime Rate, skyrocketed to 17.49% in April from 9.99% in January of 2023.

The card holder’s eyes popped when the new APR for cash advances zoomed to 29.49% from 21.99%. A borrower would be quoted better rates on a Mafia juice loan.

However, Sam Khater, Freddie Mac’s chief economist, sees some sunlight on what other experts view on the cloudy horizon.

“The 30-year fixed-rate mortgage increased modestly for the second straight week, but with the rate of inflation decelerating rates should gently decline over the course of 2023,” said Khater. “Incoming data suggests the housing market has stabilized from a sales-and-house-price perspective.”

Khater is forecasting the prospect of lower mortgage rates for the remainder of the year. “This should be welcome news to borrowers who are looking to purchase a home,” he said.

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

Borrowers who shop around may find better deals, according to Rate Seeker.com. For example, on April 27th, First Savings Bank of Hegewisch was quoting 5.611% on 30-year fixed rate home loans with a 20% down payment. The bank charges a loan origination fee of $615.

Mutual of Omaha was quoting 5.922% on 30-year fixed loans with a 20% down payment and a loan origination fee of $850. Fifteen-year fixed mortgages are available at 5.375% with 20% down and an $850 loan fee.

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

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.

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 24 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.