Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Mortgage Rates' Category
It’s official: Home prices are at last on the rebound in Chicago, and around the nation as a whole. After a relentless six-year downturn that shaved about 30% off local prices, we have now seen three months of steady increases in the Chicago area, according to the latest S&P/Case-Shiller housing index.
Here’s what this means on a practical level, for ordinary Chicago buyers and sellers: Prices have stopped falling, and started to rise slightly. There is more competition now than in recent years, especially for nice properties in desirable neighborhoods, and we’re seeing more multiple offers and homes going under contract at a faster pace (sometimes in a matter of days or weeks). Sellers now have a good chance of finding a qualified buyer IF they price their property in line with recent sales.
But the price increases have been small — especially when compared to the steep declines that preceded it. For example, the Case-Shiller data shows single-family home prices climbing 2.7% from June to July, on top of a 4.6% jump from May to June and a 4.5% increase from April to May.
Overall, home prices in Chicago stand about where they were a year ago. Sellers need to remember this when pricing their homes; a “housing recovery” doesn’t mean that prices have shot back up to 2006 levels. Check out the graph above to see what I mean!
Still, the market is getting healthier. The summer home-buying season was so busy I barely had time to blog about it. Attracted by the lowest interest rates ever seen on mortgages — rates on 30-year fixed loans just hit 3.4% this week! — buyers are now flocking back into the market.
I’m especially encouraged to see young buyers decide to stop renting and buy their first homes. Many of my buyers this year have been in their 20s or early 30s, a key home-buying demographic which will power the market forward. After all, with mortgage rates so low and Chicago rents on the rise, buying is now making more financial sense than renting in many cases. A recent report by Trulia showed that buying a home in Chicago is now 50% more affordable than renting a similar home here, making Chicago a better deal for buyers here than in most other cities (72 out of 100) surveyed.
The home-buying season is now cooling off as the winter approaches, but I expect the spring of 2013 to be very active as more Chicago buyers take advantage of this unprecedented combination of low prices and low interest rates.
Good news for Chicago home buyers: Lenders are finally starting again to offer loans with minimal down payments. Guaranteed Rate, for example, announced this week that it can now do conventional loans (not FHA!) with 3% down, provided the borrower has a credit score of 680 or higher.
This is especially good news for condo buyers, who have been forced to turn to FHA in recent years for a low-down-payment loan… but in Chicago, FHA and condos are often a lousy fit.
The trouble is, many first-time buyers can’t scrape up much cash to buy their first home. Ever since the real estate downturn led lenders to dramatically tighten the purse-strings in 2008, many buyers have been told to come up with at least 10% down. For hundreds of thousands of people, the only alternative was to use an FHA loan, which requires just 3.5% down.
This was all (usually) well and good if you were buying a house. But many first-time buyers in Chicago want a condo, and the vast majority of Chicago condos are NOT currently FHA-approved. Making matters worse, the FHA changed its rules last year to make it even more cumbersome to get condo buildings approved.
But now, buyers with good credit can avoid the whole FHA bottleneck and choose whatever condo they like — and still only put 3% down. This is great news for sellers, too, since it will smooth the path for buyers who may be interested in their homes.
It always amazes me when I compare today’s cautious home buyers to the buyers of 3 or 4 or 5 years ago, who were willing to spend top dollar, at interest rates of perhaps 6 and 6.5%, to buy a home. Buying Chicago real estate is a MUCH better deal now, with prices down 20-30% in some neighborhoods, and banks offering rock-bottom mortgage rates of 4.5% or less for a 30-year, fixed loan.
Basically, if you buy today, you could get the same property at a huge discount compared to what you would have spent on it a few years ago. Yet buyers seem to be sitting on their hands during one of the best buyer’s markets ever, afraid to make a move.
So I was glad to see that Karl Case, an economics professor who was one of the creators of the widely-read Case-Shiller housing index, wrote an op-ed piece yesterday in the New York Times explaining that real estate was still a good investment, especially given today’s low prices and interest rates.
“This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market,” Case wrote. “But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again.”
Case explained that the advantages of today’s lower home prices and interest rates translated into savings of hundreds of dollars per month on an ordinary house. He also pointed out that home owners can deduct the interest they pay on their mortgage, a tax break unavailable to renters.
This is, quite simply, an extraordinarily good time to buy a house. That’s what I try to tell my skittish buyers, emphasizing to them that if they plan to stay in the home for years (which I recommend), in all likelihood they will be making a sound investment.
But perhaps all optimistic realtors sound like… optimistic realtors. Maybe Karl Case says it better. To read Case’s piece, click here.
The summer of 2010 was a particularly slow season for Chicago real estate, beginning in May when the federal tax credits for home buyers expired. But now, as summer heads into autumn, house hunting seems to be picking up again.
Super-low mortgage rates are certainly part of the allure. Many Chicago lenders are now offering rates well below 5%… This week I saw that Guaranteed Rate was dangling a 4.375% interest rate on a 30-year fixed loan, which is the lowest I’ve ever seen. These rock-bottom rates make borrowing money quite cheap, meaning that buyers can get considerably more house for the same monthly payment than they would have a few years ago when rates were between 6 and 7%.
At one of my listings, a 2-bedroom condo with parking in the heart of Andersonville, I’ve had three showing requests in the last three days. One of the prospective buyers told me she and her husband just sold their previous home. My theory is that now we’re going to see more buyers like her, people who managed to sell their existing property (perhaps thanks to the tax credits earlier this year) and are now in a position to buy again.
Mortgage interest rates recently fell to 50-year lows, in spite of the fact that there aren’t too many buyers left to appreciate them. Most Chicago-area home buyers who took advantage of the government’s $8,000 or 6,500 tax credit have already closed (or will in June), but for those folks still out house-hunting: It’s time to lock in your interest rate!
Average 30-year mortgage rates dropped to 4.8% last week, according to the Mortgage Bankers Association. This is stunningly cheap money, but unfortunately home-buying applications also plunged to their lowest level in more than a decade. That’s because “anybody that wanted to buy a house probably did last month,” Jay Brinkmann, the MBA’s chief economist, told the Wall Street Journal.
The low interest rates come as something of a surprise, because all year economists have been predicting rates would rise after the Federal Reserve halted its $1.25 trillion in purchases of mortgage securities in March. Instead, Europe began to unravel.
The debt crisis gripping Greece, Spain, Portugal and other over-extended European countries has prompted a wave of international investors to seek safe harbor … in the United States. Investors have poured a flood of money into safe-haven assets such as mortgage-backed securities guaranteed by the government and U.S. Treasury bonds, which are closely tied to mortgage rates.
So instead of mortgage rates rising to 6%, as many economists had forecast, they now look like they could settle as low as 4.5% this summer.
It’s a tricky time to be using FHA to buy a condo. Most Chicago condo buildings are NOT already FHA-approved, and the Federal Housing Administration recently changed its rules to eliminate “spot” approvals. This means that the whole condo building must be approved before FHA will insure any mortgages there, a process that now takes about a month.
Many buyers are attracted to FHA loans because they require low down payments (just 3.5%). But after a few weeks out looking at condos, people often tire of the FHA game, because (at the moment) it is severely limiting which buildings they can buy in.
But there is an alternative! If you have good credit and can come up with a slightly higher down payment, several Chicago lenders — including Guaranteed Rate and Wintrust Mortgage — are now doing condo loans with just 5% down. Northern Trust is also offering low down payment loans for people with good credit, although that program has some income restrictions.
Eventually, once many condo associations complete the paperwork to become FHA-approved, there will be a broader selection of Chicago condos for FHA buyers. But at the moment, with thousands of first-time buyers trying to close in time to claim their $8,000 tax credit, trying to find an FHA-approved condo in a hurry can be challenging.
Why limit your choices? If you can scrape together a bit more cash, you may be able to qualify for a 5% down mortgage that will work for a much wider selection of properties.
Congress has already extended and expanded the $8,000 first-time home buyer’s tax credit once, and it’s unclear that lawmakers have the appetite to do so again. So if you are still considering buying a home, you now have about two months left to scoop up thousands of free dollars.
This is a great deal for buyers, but many of them aren’t quite ready to act. Here’s why they should:
1) First-time buyers (who earn up to $125,000 as a single person or $225,000 as a couple) can get $8,000 back on their taxes. This is free money, one of the primary ways the government is helping regular people rather than banks and other corporations. Buyers who have already owned homes can now qualify for a $6,500 tax credit if they purchase a home they intend to occupy.
2) Interest rates are phenomenally low right now. I just had a buyer lock in a rate of 4.83% on a 30-year loan! But we will not see rates of 5% and below for much longer, because the government has already announced its intention to stop buying the mortgage-backed securities that are keeping rates artificially low. Many experts predict mortgage rates will rise half a point to a full point this year, beginning at the end of March.
3) There are tons of real estate bargains out there right now. More foreclosures are hitting the market, holding down prices across the board, and even new condo developments in trendy neighborhoods like River North, Gold Coast, Streeterville, West Loop and the South Loop have seen dramatic price reductions in an effort to attract buyers.
Remember, to qualify for the tax credit you must sign a contract to buy the home by April 30 and close by June 30.
I know it’s a snowy mess outside, but Chicago’s “spring” home-buying season has already begun. This usually happens the week after the Super Bowl in early February, but this year everything is gearing up a month earlier because many buyers are trying to take advantage of the federal home buyers tax credits, which expire in April. Mortgage rates aren’t waiting either, and if you plan to buy this spring it’s time to lock your rate now. Here’s why:
1) The federal government is about to let rates rise. For much of the last year, the mortgage market has been on government life support, and it’s been working. The Federal Reserve has been buying $1.25 trillion in mortgage-backed securities to help keep credit flowing, pushing rates to historic lows of below 5%. But it has announced it will wind down this program by March 31. Without this massive government aid, rates will rise.
2) Mortgage rates are already creeping up. Long-term interest rates (like a 30-year fixed mortgage) are already rising in anticipation of this move. One of my buyers (with excellent credit and solid income) just told me he was being quoted a 5.25% rate from various lenders, which is still a darned good deal. Many economists are predicting mortgage rates could soon jump a half point to a full point.
3) Acting now can save you thousands of dollars each year. If you’ve never had a long-term loan, and many first-time buyers haven’t, you might not realize the huge difference just a percentage point can make when it comes to interest rates. An example: Say you borrow $300,000 to buy a house. At today’s 5.25% rate, your mortgage would cost $1656 per month (before taxes and insurance). At a 6.25% rate, however, that loan would cost $1847 per month — or $2,292 MORE each year.
Mortgage rates have been sweet this summer, and the demand is rising.
Loan applications soared 17% last week, with low interest rates driving demand for both new purchases and refinances, according to the Mortgage Bankers Association’s weekly survey.
Some of this demand, in my opinion, is also coming from first-time buyers trying to close in time to snag the government’s $8,000 tax credit. It expires at the end of November, so there’s a bit of a rush right now for lenders.
Here’s a look at current mortgage rates in Chicago, courtesy of Wintrust Mortgage:
|30 Year Fixed|
|FHA 30 Year Fixed|
If you’re already a homeowner who is paying a higher rate, it may be time to refinance. Keep in mind that many lenders expect you to have 20% equity in your home, so if you just bought it last year with 5% down you’re probably out of luck.
According to the Mortgage Bankers Association, refi applications rose 22.5% last week, the largest increase since March. The demand for purchase loans went up 9.5% from the prior week.
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