Illinois Mortgage Rates Week in Review
25th April 2008
Welcome to Illinois Mortgage Rates and News week in review for the week ending April 25th, my take on the week’s financial news and how it affected Illinois mortgage rates.
There were a lot of mixed signals in the mortgage backed securities markets this week, and the upshot is that we are back in a battle between inflation and recession. Whichever side wins, we already know who loses – the American consumer. For now, it looks like inflation has the advantage. Commodity prices have spiked higher and oil hit a record high this week. Signs of inflation are easy to find, especially at the gas pump and the grocery store. Any sign of inflation kills mortgage bonds and sends mortgage interest rates higher. The reason for this is that mortgage holders (lenders and loan servicers) know that their loan, if all goes as expected, will pay them back at a set interest rate over a certain number of years (a 30 year loan will pay off within 7 years, on average). Inflation upsets this system because when inflation is raging prices move up and consumers have to spend more to get the same value they used to be able to buy for less. In other words, their money doesn’t go as far and dollars are cheaper. So a mortgage holder is worried that they will be stuck with a long term loan and their borrowers will pay them back with cheaper dollars, lowering the value of their investments. There is no doubt that we are seeing inflation, and it is now a global concern. But this is only part of the story.
Inflation is usually a sign of an overheating economy. When the economy is running strong and inflation is moving up, this is usually the point where the Fed steps in and raises short term interest rates to put on the breaks and bring inflation back in line. That’s not the case now and we aren’t exactly in boom times. In fact consumers as a group are feeling real pain now. One measure of consumer confidence, the University of Michigan Consumer Sentiment Index, came in today at the lowest reading since 1982. Fuel prices and food prices have moved up sharply at the same time that home values have fallen (much more in some areas than in others). This means that most people will pull back, and only buy the things they truly need.
Here is the question I have. Inflation is here, but will it continue to rise if people aren’t buying at the same rate they have been? A lot of companies released their earnings this week, and overall earnings were better than expected. Is this a sign that the economy is over the worst and ready for a rebound? I think there is a real split between corporate health and consumer health. A lot of the earnings surprises were a result of companies trimming their workforces, and sales overseas. I still don’t think we can have a real rebound until housing comes back. Is inflation a real problem when people are feeling crunched and their overall wealth level is down? I hear a lot of predictions that mortgage rates will continue to rise because of fear of inflation. I think we may have a problem with inflation down the road, but we need to get through the valley first. If consumer spending doesn’t pick up (and with credit getting tighter I don’t see how this will happen) inflation may be bled right out of the system. Rates have risen toward the high point of the range over the last 2 weeks, but they are still in the same range we have been in since before the first of the year. We will see how this all shakes out in the coming months.
New claims for unemployment insurance came in at 342,000, this week. High, but lower than the 375,000 released last week. Existing home sales fell both nationwide and in the Chicago area. New home sales came in well below expectations, and there isn’t much new housing going up.
All this being said, there is still mortgage money available and we are in a buyer’s market. The contacts coming in show the buyers getting excellent prices compared to what homes were going for last year, and in many cases the sellers are chipping in by paying closing costs or other concessions. Rates are still very affordable and historically low. If you are thinking about buying a home in the Chicago area, or anywhere, and are ready to pre-qualify for a mortgage, let me know, I would love to help.
So where are we with mortgage rates? Rates moved down, then up, ending close to where they were at the end of last week.. Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee. The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :
Conventional loans up to $417,000
30 year fixed rate 6.00% 6.164% APR
15 year fixed rate 5.625% 5.754% APR
5-1 A.R.M. 5.50% 5.658% APR
7-1 A.R.M. 5.75% 5.839% APR
For Jumbo loans over $417,000
30 year fixed rate* 6.75% 6.869% APR – Requires 20% down payment
(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines – 75% loan to value, tighter ratios.)
7-1 A.R.M.* 5.875% 6.142% APR *there is a 1 year pre-payment penalty on this option.
FHA LOANS
With 1 point origination fee – 60 day lock
30 year fixed rate 5.75% 6.047% APR
With no origination fee – 60 day lock
30 year fixed rate 6.00% 6.246%
These are just a sampling of the mortgage rates available. Which option is best for you depends on your own specific goals and needs. Next week’s economic news includes Tuesday’s 1st Quarter GDP growth, the FOMC meeting and rate decision on Wednesday, and Friday’s Jobs Report, always a big mover of mortgage rates. Expect another wild week.
Illinois Mortgage Rates and News