Will Home-Loan Rates Ever Fall? FED Honeymoon is Over
By Don DeBat
Will Chicago home buyers and families seeking to refinance ever see mortgage rates in the 5%-range again? Only a gypsy fortune teller’s crystal ball will tell.
However, the honeymoon apparently is over between new Federal Reserve Board (FED) chairman Kevin Warsh and President Donald Trump. On Sept. 4th President Trump urged the central bank and chairman Warsh, to “get smart” and cut rates.
So, with President Trump as the biggest critic, this is what Chicago prospective home buyers should be worrying about this autumn:
• President Trump demanded that the Fed slash interest rates or else he will cut off trade with countries with which the U.S. maintains trade deficits.
• Later, in the Oval Office last week, Trump doubled down saying: “We should be paying the lowest interest rate in the world.”
• Trump threaten to cut off trade with countries that have surpluses with the U.S., unless the Fed cuts interest rates.
Analyst note that the U.S. has large deficits with dozens of countries, including its top trading partners. Trump issued his sweeping ultimatum on interest rates after following a much-stronger-than-expected monthly jobs report. Employers nationwide added 162,000 jobs in August.
Trump reasoned that the strong job report means the economy is stronger that the Fed believes, and interest rates should be lower. The Fed declined to comment on Trump’s post.
Canada in Trump’s crosshairs
The President named Canada—which is currently locked in a trade-and-tariff feud with the U.S.—as an example. “If we were playing hardball, all we’d do is say we’re going to do no trading with Canada. If we did no trading with Canada, we’d save $90 billion,” Trump claimed. “Each percentage point in interest that we pay in this country costs us $650 billion. We should be at 1% or a half of 1%. We shouldn’t be at 4%.”
Trump’s comments were issued two months before the midterm elections, where Americans’ unhappiness with persistent high inflation has been a dominant theme.
A week earlier, Fed chair Warsh said interest-rate hikes could soon be on the table because of higher inflation. Ironically, much of the inflation growth was sparked by Trump’s Iran War, which has driven up the cost of gasoline 44% since February 28th to $5-plus a gallon, and diesel fuel shot up 24% between July and August to $6 a gallon.
Sounding much like former Fed chair Jerome Powell, Warsh said he is committed to bringing the inflation rate back down to the central bank’s 2% target. “Short-term interest rates are the predominant tool to achieve the dual mandate,” he said. The inflation rate in August was 5.4% up from 4.8% in July.
Taken at face value, the threat to end trade with deficit-harboring countries is extreme: The U.S. has large deficits with dozens of countries, including its top trading partners.
Trump has long sought lower interest rates and frequently complains about U.S. deficits with other countries. But many economists say trade deficits themselves are not necessarily good or bad. In fact, deficits can occur when a country has more purchasing power to buy more goods.
Nations that have trade surpluses with the U.S. will often use the dollars they receive to buy U.S. Treasurys, putting that money back into domestic circulation, analysts said. The U.S. has reported trade deficits in the tens of billions of dollars each month for decades.
Home-loan rate creep continues
On Sept. 10th the Freddie Mac Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate home loans rose to an average of 6.76% from 6.71 a week earlier. A year ago, the key 30-year rate averaged 6.35%. The average rate on the popular 30-year mortgage now is the highest it has been since July 31, 2025, when it hit 6.72%.
Fifteen-year fixed loans averaged 6.09% on Sept. 10th, up from a week earlier when it averaged 6.04%. A year ago, the 15-year fixed mortgage averaged 5.50%.
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.
Mortgage rates were much higher in 2023. Rates on 30-year fixed loans bounced in the mid-7% range between 7.09& on August 17 and October 19, 2023.
On October 26th, Freddie Mac reported that 30-year rates soared to 7.79%, while 15-year fixed mortgages rose to 7.03%. Some crystal-ball gazing analysts are predicting a return to 7%-plus mortgage rates before the holidays.
Mortgage-rate history
What a difference a few years make. Less than six years ago, 30-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, runaway 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 2000—when some of today’s Millennial borrowers were still in diapers, lenders were quoting 8.04%.
Between 2002 and 2011, rates bounced in the 4% to 6% range. They inched into the 3% to 4% range until 2020, when they fell into the rock-bottom 2% bracket.
Sam Khater, Freddie Mac's chief economist, gave the following sage advice: “Aspiring buyers should remember shopping around for the best mortgage rate and getting multiple quotes can potentially save them thousands.”
North-Side home sales flop
In August of 2026, North Side home sales numbers dropped -14% and residential listings declined -18.4%, reported the September Baird & Warner North Side Chicago Market Analysis.
“With home inventories down -25.8 year to date, the market desperately needs a strong influx of new listings,” said broker John Irwin of Baird & Warner, co-author of the report with Jackie Lafferty.
With the listing shortage, median home prices increased on the Near North/Gold Coast, Lincoln Park and Lakeview. Median North Side prices are up 10.9% year to date, according to Baird & Warner.
***
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.
Comments