Monday, March 30, 2009

HOME BUYER BONANZA: MORTGAGE RATES NOW IN THE 4-PERCENT RANGE

With home-loan interest rates already in the 4-percent range and residential resale prices down 20 percent or more in some neighborhoods, spring house hunters in the Chicago have not had it this good since 1965 when President Lyndon Johnson was in the White House.

The Federal Reserve’s plan to double its purchases of mortgage debt pushed benchmark 30-year fixed home loans to an average of 4.98 percent in late March, and some analysts predict rates eventually could inch toward the rock-bottom plateau of 4 percent with President Obama’s stimulus program driving the current economic cycle.

Chicago-area mortgage lenders currently are charging 4.875 percent on a 30-year fixed loan and 4.625 percent on a 15-year fixed mortgage and the market for adjustable-rate loans has all but dried up, noted Perry D. Farella, mortgage banker with Wintrust Mortgage.

“We look for 30-year mortgage rates to hit 4.5 percent by the end of April, and 15-year fixed loans could decline to 4.375 percent,” Farella said. “But if you are planning to buy or refinance, better get your loan application together in the next 30 days. If the economy starts to grow again, rates will rise.”

Steven V. Frytz of Anchor General, developer of Cornelia Court, a 63-unit townhome development in West Roscoe Village, believes the next few months could be the best time to buy a home in the next decade.

“This is a time of opportunity. We are at or near the bottom. Inflation and higher interest rates will occur in the next business cycle.”Frytz said.

On March 19th, when 30-year fixed rate mortgages averaged 4.98 percent, Freddie Mac’s Primary Mortgage Market Survey reported that the benchmark loan average had not been lower since the week ending January 15, 2009, when it hit an all-time low of 4.96 percent. A year ago, the 30-year fixed loans averaged 5.87 percent.

Frank Nothaft, Freddie Mac vice president and chief economist, noted that that the rate downturn came when yields on 10-year bonds plummeted a half of 1 percentage point following the Federal Reserve monetary policy statement announcing further spending initiatives on financial assets. The decline was the largest one-day drop in 10-year bond prices since October 20, 1987, he said.

Analysts are wondering if the lower rates will jump-start the nation’s housing market. Recently, as much as three-quarters of the home-loan application activity has been for refinances rather than home purchases.

Meanwhile, Chicago’s resale home sales numbers and prices continued to slide.

Single-family home and condominium resales in February were down 40.4 percent to 841 units compared to year-ago sales of 1,412 units. The median home price in Chicago in February was $218,250, down 24.7 percent from $290,000 in February of 2008, reported the Illinois Association of Realtors.

“Even though conditions are good for buyers with low interest rates and lower home prices, the job losses in Illinois and record-low consumer confidence has kept potential home buyers waiting on the sidelines,” said Realtor Pat Callan, president of the IAR.

“Looking ahead, Realtors are hopeful the Obama stimulus measures such as the $8,000 tax credit will give first-time buyers some confidence in the months ahead,” Callan said. “Reducing unsold inventories and the downward pressure on prices from distressed home sales will go a long way toward stabilizing home prices and lead to recovery in the housing market.”

David Hanna, president of the Chicago Association of Realtors, noted that some investors and bargain hunters are looking for short sales and foreclosure deals to add to their portfolios, while other smart buyers are finding starter-homes and investment properties at below-market prices.

“A close look at the sale of non-distressed properties shows buyers and sellers seem to be reaching a point of balance with pricing, especially in areas where showing activity has been strong,” Hanna said.