By Don DeBat

14-Oct-23 – All that hand-wringing going on over morning coffee at Starbucks is sparked by would-be home buyers worrying about mortgage costs. Forget the grande double latte, pass the iPhone calculator.

On September 28, benchmark 30-year fixed home loan interest rates hit 7.31 percent nationwide, up 0.12 percent from 7.19 percent a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey. On October 12, average 30-year fixed rates were up another 0.26 percent to 7.57 percent. A year ago, 30-year fixed home loan rates averaged 6.09 percent. Two years ago, rates averaged only 3.01 percent.

“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” noted Sam Khater, Freddie Mac’s Chief Economist, on September 28. “However, unlike the turn of the Millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”

Fifteen-year fixed-rate mortgages averaged 6.72 percent on September 28, up from 6.54 percent a week earlier, and 6.89 percent on October 12. A year ago, the average 15-year loan rate was 5.14 percent. Two years ago, the rate averaged a record-low 2.36 percent.

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.

All this rate hike hubbub has forced this North Side homeowner to gaze back and reminisce about his own roller coaster ride in “Mortgageland.” Here is a brief snapshot of yesteryear:

• In 1973, a stucco bungalow in the Irving Park Villa neighborhood was purchased for about $28,000. Mortgage rates at First Federal Savings were in the 7.5 percent range.

• Less than a decade later, in October 1982, rates on 30-year fixed home loans skyrocketed to a record high 18.5 percent during the Reagan administration.

• In 1985, a vintage brick English Tudor home in the Sauganash neighborhood was purchased for about $140,000. It was financed through Cragin Federal Savings with a 30-year fixed mortgage at 11.75 percent. A few years later, when rates declined, it was refinanced with a 15-year fixed mortgage at 7.75 percent.

• In 1998, a historic, ultra-luxury Victorian home in the Old Town neighborhood was financed with a 30-year fixed loan from Lincoln Park Savings at an interest rate of 7.25 percent.

• In 2005, a contemporary new-construction single-family home in the Hollywood North Park neighborhood that backed up to a park was purchased for $695,000. It was financed with a 30-year fixed mortgage at 5.87 percent.

• In 2021, a 1950s brick ranch home (left) in the leafy South Edgebrook neighborhood was purchased for $380,000 and financed with a 15-year fixed mortgage from Guaranteed Rate Mortgage at 2.375 percent interest.

Today, potential Chicago home buyers are being whipsawed not only by soaring mortgage rates, but the squeeze of price growth.

For the third month in a row, home prices grew faster in the Chicago area than any other major U.S. city, according to new data from the S&P CoreLogic Case-Shiller Home Price Indices released on September 28.

Extremely high prices and an overall strong economy have led the Federal Reserve to take drastic measures, implementing a rapid succession of rate increases unseen since the early 1980s.

In 2022, the Fed announced four historic rate increases of 0.75 percent in June, July, September, and November, followed by a 0.50 percent rate hike in December 2022. In 2023, the Fed ordered four additional rate hikes of 0.25 percent in January, March, and late July. As a result, the current federal funds rate now sits in the lofty range of 5.25 to 5.50 percent.

Many forecasters are speculating about where interest rates will go in the next year or two. Some predict that mortgage rates will average around 5 percent in 2024 and decline to the 4 percent bracket in 2025.

Whether this favorable scenario unfolds remains uncertain. However, it would come as a significant relief for worried home buyers. Forget the double latte, pass the Valium!