Illinois Mortgage Rates and News

If you are in the market to buy a home or condo here in the Chicago area, you are probably a little bit nervous. On one hand, the property values are down and you are able to buy a home at a bargain price compared to where homes were selling just a year or two ago. On the other hand, you wonder if we are near the bottom, or if the bargain you buy now will seem over priced a year from now. The truth is that markets (whether stock markets, bond markets or real estate markets) are unpredictable, and we won’t know where the bottom was until we have gone past it. That being said, I’m not sure we are at the bottom yet, but it is still a good time to buy a home here in the Chicago area, as long as you plan to keep it more than a few years.

Markets go up or down based on supply and demand, and these two factors can be broken down into fear and greed. The fear and greed isn’t just with the buyers and sellers of real estate, it extends on to all the players in the real estate market, Realtors, lenders and the financial markets. A few years back when the real estate market was on fire, greed was in the air and all people could see were dollar signs. Sellers saw prices for their homes that they wouldn’t have dreamed of a few years before. Buyers saw an opportunity to buy a home that would do nothing but appreciate, and they were convinced that if they didn’t buy now the price would be higher if they waited. Realtors and lenders saw more opportunities for sales and commissions and the financial markets looked at this as a way to convert cheap, easy money into an endless stream of high return investments. The belief at the time was that real estate in the United States never went down in value. Anyone with a long term memory would know that didn’t make sense. There had been real estate bubbles in California and Florida before, and the Texas market took a long time to recover from the bust after the Oil boom in the 80s. But here in the Chicago area, in the heart of the stable Midwest, it was easier to believe. We didn’t see the extreme highs that other areas saw, so we felt that we would escape a real down turn, too.

Since the real estate and mortgage market started to dive, people have been pointing fingers at who was to blame. Some said it was the buyers who bought homes they couldn’t afford. Others blamed the lenders for making loans to people who never should have gotten credit in the first place. Some of this blame is well deserved - I know that I shook my head at some of the loans that were offered – but I think the real cause was the big financial players on Wall Street who had too much money to invest, and not enough places to invest it. Money at the time was cheap, and there was no place on a global scale that was able to give the returns that big investors were demanding. The old secure A-Paper mortgages weren’t enough to meet this demand. This was when the creative minds on Wall Street started churning out new mortgage backed securities that would fill the void for their investor clients. Mortgages are underwritten based on risk. When greed is in the air risk doesn’t seem as important, so underwriting guidelines were thrown out the window and mortgages were available for people who never would have considered buying a home before. With so many more buyers able to qualify for financing, this means there was more demand than the supply of homes for sale was able to meet. This meant that property values had to go up, here in the Chicago area and throughout the country.

Now the pendulum has swung and we are on the fear side of the equation. At some point, probably when property values started to move down in the hottest markets, Wall Street saw the risk they were taking. They cut off the money spigot and since then mortgage underwriting has gone through a series of tightening measures so that it is harder to qualify for a loan now than it was before the whole loose money party started. With less people qualified for financing that means less people are able to buy. Lower demand means lower prices. So now fear has taken hold and everyone is looking at all the negatives. Foreclosures are up, the economy is soft and the inventory of homes for sale is the highest in years. Right now we are going through a cycle where the bad news in the market causes the lenders to pull back even more, reinforcing the bad news and making it that much harder for the market to recover. But markets are unpredictable and hard to time right. At some point the bad news will be less important than the opportunities for profit. In the stock market the recovery usually starts when people are the most pessimistic and it could work the same way in our market. By the time good news is out, we will have bounced off the bottom and prices will be heading up again. So the question is, is the time now? Are we close?

We may be closer than we think, or it may take quite a while before the market turns around. But if you have a good reason to buy it really shouldn’t matter. The Chicago area is still a dynamic economy and people still need housing. Home builders are at a standstill and not cranking out new homes, so over time the supply and demand will start to balance out. Prices are low, mortgage rates are low and if you have a long term perspective, chances are that when real estate values recover you will be rewarded, and we won’t know we are there until the train has already left the station.

Illinois Mortgage Rates and News