By Don DeBat

22-Jul-23 – Like a cannon blast on the Fourth of July, home loan interest rates hit a new high for 2023 in July – sending smoke clouds of distress over Chicago’s housing market.

On July 6, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed loans averaged 6.81 percent, up from 6.71 percent a week earlier. A year ago, 30-year fixed-rate loans averaged 5.30 percent.

The July 6 spike pushed rates to the highest they have been since they hit 7.08 percent on November 10, 2022.

Over the past year, Federal Reserve chairman Jerome Powell has aggressively raised the federal funds rate to fight inflation. On May 3, the Fed raised its funds rate 0.25 percent to a range of 5 to 5.25 percent. The effective rate is a weighted average of interest that banks charge to lend money to each other overnight. Banks currently are charging their most creditworthy corporate clients a prime lending rate of 8.25 percent.

“Mortgage rates continued their upward trajectory again...rising to the highest rate this year so far,” said Sam Khater, Freddie Mac’s Chief Economist.

On July 6, lenders were charging an average of 6.24 percent on 15-year fixed mortgages, up from 6.06 percent a week earlier. A year ago, the 15-year fixed loan average was 4.45 percent.

“This upward trend is being driven by a resilient economy, persistent inflation, and a more hawkish tone from the Federal Reserve,” said a gloomy Khater (right). “These high rates combined with low inventory continue to price many potential home buyers out of the market.”

The Freddie Mac 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 7, 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.

Swank apartments losing value

Experts say sharply higher interest rates are making apartment investors wary about borrowing funds needed to close real estate deals. As a result, swank Gold Coast and Streeterville apartment buildings are losing market value. Here are a couple of examples:

• Streeterville’s 398-unit North Water Apartments (left) recently was sold to Crescent Heights for $173 million. Seven years ago, Invesco paid $240 million for the property at 340 East North Water Street. • The Seneca, a 267-unit rental building at 200 East Chestnut Street in Streeterville, recently sold for $55 million, according to Cook County property records. The seller, The Vanbarton Group, a New York-based investor, paid $74.8 million for the 16-story tower in 2014. The John Buck Company

“Apartment occupancy rates are very high, but investors just can’t pay what they paid a few years ago because the cost of debt is so high,” noted Ron DeVries (right), Senior Managing Director of Integra Realty Resources, a Chicago appraisal firm.

New home construction rising

If there is one bright light on the housing horizon it is the surge of new-home construction across the nation.

The National Association of Home Builders reported that 1.631 million units were started in May, a month-over-month increase of 291,000 units – the biggest leap in 33 years, according to Reuters.

NAHB data shows home builder confidence rose in June for the first time in 11 months because of an improved supply chain.

“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing – for-sale, for-rent, multifamily and single-family,” said Robert Dietz (left), NAHB’s Chief Economist.