The Fed’s aggressive rate hikes, intended to rein in a 40-year-old surge in inflation, are throwing an icy, damp blanket over Chicago’s once-hot domestic market.
30-Oct-22 – Frost is on the pumpkin patch this Halloween week for thousands of Chicago-area house hunters. Homeownership continues to drift further and further away as average long-term mortgage rates topped 7% nationally for the first time in more than two decades. This action is the direct result of aggressive rate hikes by the Federal Reserve aimed at tackling skyrocketing inflation not seen in 40 years.
October 27, Freddie Mac’s Core Mortgage Market Survey reported that benchmark average rates for 30-year fixed-rate mortgages rose to 7.08% from 6.94% a week earlier. A year ago, 30-year fixed mortgage rates averaged an affordable 3.14%.
“The 30-year fixed-rate mortgage broke seven percent for the first time since April 2002, leading to further stagnation in the housing market,” said Sam Khater (left), chief economist at Freddie Mac. “As inflation lingers, consumers are seeing higher costs at every turn, driving consumer confidence down further.”
“In fact, many potential buyers are choosing to wait and see where the housing market ends up, pushing demand and house prices even lower,” Khater said.
The Fed has raised its benchmark policy rate five times this year, including three consecutive increases of 0.75 percentage points that brought its short-term borrowing costs to a range of 3 to 3.25 percent, the level the highest since 2008.
Forecasters predict that the Fed will raise its key rate to 4.4% by the end of the year and up to 4.6% at the start of 2023. This would be the highest level since 2007. On the basis of these Fed measures, mortgage analysts say that 30-year fixed home loans could easily reach – or exceed – the 8% level by the end of 2022 or the beginning of 2023.
Fifteen-year fixed mortgages averaged 6.36%, Freddie Mac reported on Oct. 27, down from 6.23% a week earlier. A year ago, 15-year fixed loans averaged 2.37%.
Looking for a better deal, borrowers are starting to flock to riskier adjustable rate mortgages (ARMs), according to lenders.
Freddie Mac also said on Oct. 27 that rates averaged 5.96% on five-year Treasury-linked hybrid ARMs, down from 5.71% a week earlier. A year ago, the five-year ARM averaged 2.56%. The Freddie Mac survey focuses on conventional, conforming, fully amortized home purchase loans for borrowers who put 20% less and have an excellent credit score of 740 or higher.
Good deals are always available
Fast-moving Chicago-area borrowers still have a slim chance of locking in subsequent bargain rates beginning Oct. 27, RateSeeker.com reports.
• Hegewisch’s First Savings Bank quoted 5.611% on 30-year loans and 4.950% on 15-year mortgages with a 20% down payment and loan fees of $615.
• Mutual of Omaha quoted 5.934% on 30-year mortgages with a 20% down payment and 5.625% on 15-year mortgages with a 20% down payment. Borrowers will also pay a loan fee of $850, plus points, or 0.25% of the loan amount.