Monday, May 05, 2008

OUTLOOK FOR LOWER MORTGAGE RATES MAY TURN TIRE KICKERS INTO BUYERS

Consumer confidence is an elusive commodity in Chicago and across the nation as more house hunters act like tire kickers than serious buyers.

Some financial experts say prospective home buyers are having trouble planting their feet in a new home or condominium when the shaky economy makes them feel like they are walking on eggs.

However, appraiser Gail Lissner believes now may be the best time in decades to take the plunge and buy a new condo downtown.

“Mortgage rates near a historical low, and buyers now have a multitude of new condo choices downtown from the Loop and South Loop to the West Loop,” said Lissner, vice president of Appraisal Research Counselors, Ltd.

Lissner said 2008’s new condo deliveries are expected to pump up new downtown inventory to a record 5,800 unsold units, and another 5,000 units unsold are in the pipeline for delivery in 2009.

“Most of these newly completed units feature upgraded interiors—including gourmet European kitchens and marble baths—selected by the developers, so the residences will be tough competition for the resale condo market,” Lissner said.

Regarding attractive home loans, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages averaged 6.06 percent in early May. Last year at this time, the 30-year loan averaged 6.16 percent.

Home loan rates could move lower this spring following the Federal Reserve Board’s move to reduce the federal funds rate a quarter of a point to 2 percent—the seventh rate reduction in as many months.

So far, the Fed has sliced 3.25 percentage points off the federal funds rate since late September of 2007. Lower the rate is intended to spark growth by reducing the cost of credit-card borrowing and business loans.

And, Lissner noted that developers continue to offer a wide range of attractive mortgage programs, frequently through preferred lenders. “Some developers are also offering mortgage rate buy-downs to attract buyers,” she said.

Frank Nothaft, Freddie Mac vice president and chief economist, said the Federal Reserve indicated “it expects inflation to moderate in coming quarters but uncertainty about the outlook for inflation remains high.” However, Nothaft said the Fed did note that “financial markets remain under considerable stress and tight credit conditions, along with the deepening housing contraction, are likely to weigh on economic growth.”

When will the housing market take a turn for the better? “We need consumer confidence to return,” Lissner noted. “Although home and condo sales in Chicago are doing much better than the East Coast and West Coast, the market slowdown isn’t controlled locally anymore. The downturn is a global problem now.”