The Upward Spiral Of Home-Loan Rates Takes A Breather

Chicago house hunters should breathe a sigh of relief because the upward spiral of mortgage rates appears to be slowing.

“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percentage point, as concerns about a potential recession continue to rise,” said Sam Khater, Freddie Mac’s Chief Economist.

On July 7th, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages nationwide averaged 5.30%, down from 5.70% a week earlier. A year ago, 30-year home loan rates averaged 2.90%.

“While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” Khater said.

Fifteen-year fixed rate mortgages averaged 4.45% nationwide on July 7th down from 4.83% a week earlier. A year ago, the 15-year fixed loans averaged 2.20%.

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

Experts say the rate-increase pause likely is going to be short-lived, so it represents a narrow window for would-be home buyers who move quickly to lock in a mortgage in the low-5% range.

Another worry for summer home shoppers in Chicago is rising asking prices sparked by a shortage of resale home listings, and creating multiple-bid scenarios which could drive offers even higher.

Loan deals still available

However, Chicago-area borrowers who move quickly still have a faint chance to lock in the following bargain rates as of July 7th, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 4.853% on 30-year loans and 4.2% on 15-year mortgages with 20% down payment and a $615 loan fee.

• Mutual of Omaha was quoting 4.933% on 30-year loans and 4.625% on 15-year mortgages with a 20% down payment and a $850 loan fee.

Fed-funds rate inching higher

The Federal Reserve Board is planning a 0.50% to 0.75% increase in its funds rate at the July 27th meeting, which likely will push benchmark 30-year fixed home loans higher again.

In an effort to control inflation, the Fed’s credit tightening over time, will likely lead to higher loan rates for many consumers and businesses, including mortgages, credit cards and auto loans.

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. That scenario could push the Fed Funds rate well above the current 1.50% to 1.75% by the end of this year.

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.

On July 7th, the 10-year Treasury rate—the gauge economists use to forecast 30-year-fixed mortgage interest charges—rose to 3% from 2.91%.

If the Fed keeps pushing, it is likely that benchmark 30-year fixed mortgage rates could hit 6%-plus on the 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 higher interest rate today for a 30-year fixed mortgage, lenders said.

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. 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.