By Don DeBat

19-Dec-23 – Chicago home buyers are getting some early Christmas cheer – the gift of lower mortgage rates.

On December 14, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans declined to an average of 6.95 percent from 7.03 percent a week earlier. A year ago, the key rate averaged 6.31 percent.

“Potential home buyers received welcome news last week as mortgage rates dropped below 7 percent for the first time since August,” said Sam Khater, Freddie Mac’s Chief Economist.

The early holiday gift was wrapped with a colorful bow. The Federal Reserve last week kept its key interest rate unchanged at about 5.4 percent – its highest level in 22 years – for a third straight meeting. And the Fed signaled that it expects to make three-quarter point cuts to their benchmark funds next year.

“If inflation continues to decelerate and the Federal Reserve Board starts lowering the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year,” predicted Khater (left).

The December 14 Freddie Mac survey also reported that 15-year fixed mortgages averaged 6.38 percent, up slightly from 6.29 percent a week earlier. A year ago, 15-year fixed loans averaged 5.54 percent. The survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who place a down payment of 20 percent and have excellent credit.

The slow decline of mortgage rates in recent weeks already is causing Chicago’s rocky North Side resale home market to level off, according to an optimistic forecast from Baird & Warner’s December Market Analysis, co-authored by Realtors John Irwin and Jackie Lafferty.

“Although November of 2023 was the 21st consecutive month of year-over-year home sales decreases in Lincoln Park, Near North Side, Lakeview, and North Center, the volume drop was less than 1 percent,” reported Irwin (right). “It appears that the market may be leveling off or hitting bottom.”

While the results vary among the four neighborhoods, Irwin and Lafferty are beginning to see some positive signs.

“However, with inventory levels continuing to drop, a real estate rebound may be fragile,” Irwin warned.

The Baird & Warner December Market Analysis also noted the following positive trends:

Home sales. The number of resale homes that went under contract in November 2023 rose by 5.9 percent versus the same month in 2022. This is a vast improvement over past months when the North Side market saw double digit decreases.

“The neighborhoods of Near North Side and Lakeview reported unit sales increases of 26.6 percent and 7.1 percent respectively, while Lincoln Park and North Center continued to decline,” Irwin reported. “When we looked at homes under contract by price point, most of the sales increases came from homes priced under $1 million.”

Home prices. Baird & Warner reported a solid 8.8 percent resale home price increase in November for the second consecutive month.

While Near North Side prices fell slightly by less than 1 percent, Lincoln Park, Lakeview (left), and North Center all posted increases, as did homes priced under $2 million. Photo by 606 Vision

Interest rates. “One of the key real estate villains for the past two years seems to have been arrested for the time being,” Irwin said. “Interest rates are beginning to show some stability and have dropped to under 7 percent for 30-year fixed rate conventional loans.”

Irwin noted that James Tausche of Draper & Kramer optimistically predicted that rates may drop as low as 5.5 percent by the second quarter of 2024.

Mortgage limits. The maximum mortgage limit for conventional home loans has been raised to $766,550 in 2023 from $726,000 in 2022. Loan limits for other loans such as FHA-insured mortgages also have been increased.

“These loan limit increases, in addition to interest rate decreases, are restoring some of the buying power that has been lost over the past two years,” Irwin noted. “This hopefully will bring both buyers and sellers back into the market.”

Homes for sale. Historically low inventory levels continue to hinder a real estate rebound.

“In November of 2023, the market experienced an 18.5 percent decline in listings compared with November of 2022,” reported Irwin.

Lincoln Park, Lakeview, and North Center all experienced double-digit listing decreases ranging from 27 to 37 percent.

Outlook for 2024. “Many sellers have built equity in their existing homes, but inventory levels and rising interest rates in 2022 and 2023 have kept them from selling their homes and becoming buyers,” Irwin said. “Hopefully, interest rate stability in 2024 will get them off the sidelines, increasing inventory levels for what is already a healthy buyer pool.”