Chicago Home Shoppers Feel The Bite As Fed Hikes Rates

Much to the dismay of would-be home shoppers in Chicago, the Federal Reserve continues to raise interest rates, driving a nail through buyer wallets.

In an effort to curb inflation, on July 26, the Fed raised its key interest rate for the 11th time in 17 months. The 0.25 percent increase boosted the Fed’s benchmark short-term funds rate to 5.25 to 5.5 percent, the highest since 2007.

On July 27, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans nationwide averaged 6.81 percent, up from 6.78 percent a week earlier. A year ago, the 30-year loan averaged 5.30 percent.

"Higher interest rates continue to dampen activity in interest rate-sensitive sectors, such as housing,” said Sam Khater, Freddie Mac’s Chief Economist.

Fifteen-year fixed mortgages averaged 6.11 percent, up from 6.06 percent a week earlier. A year ago, the 15-year fixed-rate averaged 4.58 percent. The survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.

Borrowers who shop around may find better deals, according to RateSeeker.com. For example, on July 27, First Savings Bank of Hegewisch was quoting 6.084 percent on 30-year fixed rate home loans with a 20 percent down payment. The bank charges a loan origination fee of $615.

Three percent inflation still too high

Though inflation has eased from 9 percent to 3 percent – its slowest pace in two years – the Fed rate hike shows concern that the economy is still growing too fast for inflation to fall back to the 2 percent target.

“The process of getting inflation down to 2 percent has a long way to go,” said Fed Chairman Jerome Powell, who stressed that central bank policymakers will assess incoming economic data for the Fed’s next meeting in September.

However, overall consumer confidence nationwide is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July 2023, Khater said.

Apparently, there’s no stopping Americans. They keep spending, traveling overseas, and flocking to concerts and movie theaters, experts say. And, businesses keep hiring, pushing the unemployment rate near a half-century low.

“Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market,” said Khater.

Median home prices rise

Illinois Realtors reported that the median sales price of a home in Chicago was $355,000 in June, up from $335,000 in May, and $340,000 in April.

The trend of rising prices and declining sales continued during June, according to Daniel McMillen, Professor of Finance and Associate Dean at the University of Illinois at Chicago’s real estate department.

While mortgage rates have more than doubled over the past two years, higher interest rates also impact charges on other types of loans:

Credit cards. The average Annual Percentage Rate on a credit card that charges interest is 22.16 percent, according to the latest data from the Fed. That’s up about 6 percent from the average rate in the first quarter of 2022.

Auto loans. While there may still be a few special zero-percent offers out there on leftover models, auto loan rates, which averaged 4.5 percent in March 2022, rose to 7.2 percent in June 2023.

The average price paid for a new vehicle last month was nearly $48,000, about 25 percent above the pre-pandemic average. The average monthly auto payment now is $736, reports edmunds.com. Over the six-year life of the average loan, a borrower pays nearly $9,000 in interest.

Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.