11-Jul-22 – Chicago house hunters should breathe a sigh of relief because the upward spiral of mortgage rates appears to be slowing.

“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percentage point, as concerns about a potential recession continue to rise,” said Sam Khater (left), Freddie Mac’s Chief Economist.

On July 7, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages nationwide averaged 5.30 percent, down from 5.70 percent a week earlier. A year ago, 30-year home loan rates averaged 2.90 percent.

“While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” Khater said.

Fifteen-year fixed rate mortgages averaged 4.45 percent nationwide on July 7, down from 4.83 percent a week earlier. A year ago, the 15-year fixed loans averaged 2.20 percent.

The Freddie Mac survey focuses on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.

Experts say the rate increase pause likely is going to be short-lived, so it represents a narrow window for would-be home buyers who move quickly to lock in a mortgage in the low-5 percent range.

Another worry for summer home shoppers in Chicago is rising asking prices – sparked by a shortage of resale home listings – creating multiple-bid scenarios which could drive offers even higher.

Loan deals still available

However, Chicago-area borrowers who move quickly still have a faint chance to lock in the following bargain rates as of July 7, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 4.853 percent on 30-year loans and 4.2 percent on 15-year mortgages with 20 percent down payment and a $615 loan fee.

• Mutual of Omaha was quoting 4.933 percent on 30-year loans and 4.625 percent on 15-year mortgages with a 20 percent down payment and a $850 loan fee.

Fed funds rate inching higher

The Federal Reserve Board is planning a 0.50-0.75 percent increase in its funds rate at the July 27 meeting, which likely will push benchmark 30-year fixed home loans higher again.

In an effort to control inflation, the Fed’s credit tightening over time will likely lead to higher loan rates for many consumers and businesses, including mortgages, credit cards, and auto loans.

Economists say projections released by the policy-setting Federal Open Markets Committee signal the likelihood of the Fed raising rates several more times this year in an effort to control inflation. That scenario could push the Fed Funds rate well above the current 1.50-1.75 percent by the end of this year.

The Fed faces an economic balancing act, the worst since the early 1990s. If the Fed shifts too quickly, the central bank could roil markets and tip the economy into a deep recession, experts say.

On July 7, the 10-year Treasury rate, the gauge economists use to forecast 30-year-fixed mortgage interest charges, rose to 3.00 percent from 2.91 percent.

If the Fed keeps pushing, it is likely that benchmark 30-year fixed mortgage rates could hit 6-percent-plus on the near horizon, especially for borrowers who have a FICO score under 740. If you have a mediocre 650-point credit score, expect to pay a higher interest rate today for a 30-year fixed mortgage, lenders said.