Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending June 13th, my take on the week’s financial news and how it affected Illinois mortgage rates.

Over the last few weeks there has been a true change of direction in the mortgage bond markets. Mortgage rates have gone up and down as the bond market battled over what was happening with the economy. Are we in a severe recession where jobs and spending are our biggest concern? When this is the biggest fear mortgage rates go down. Is inflation heating up and will it take hold and destroy confidence along with our purchasing power? This fear leads to higher mortgage rates. Up until now there have been arguments on both sides. The economy is a mess, and which mess was worse seemed more academic than practical. Whichever factor was worse the Fed was still on their tightrope. They couldn’t loosen up anymore for fear of sparking more inflation, but how could they tighten when the housing sector was still under water and consumer confidence was so fragile? My take was that we would keep on our present course and just hope for the best. If you take the Fed at their word, inflation is now the most pressing problem.

The economic reports this week were still mixed. The Fed Beige Book, a survey of current economic conditions, showed that economic activity remained weak in April and May. Retail sales came in at 1.0% increase which was higher than expected. But this doesn’t give the full story. Much of this increase was due to stimulus buying as the wave of tax refunds and government stimulus checks hit the street. In the coming months we will have a better idea if this is a true trend, or just a one time hit. Also, retail numbers are up, but so are retail prices. Some of this increase has to be a result of inflation in the pricing. New jobless claims continued to mount, showing the job market is still unstable, and the consumer sentiment index came in worse than expected again. The most anticipated number this week was the Consumer Price Index (CPI), a measure of inflation in the economy. We’ve all seen the effect of high gas and fuel prices on our wallets. This number quantifies the effect with a number. CPI came in with a scorching .6% increase for the month, but when the more volatile food and fuel sectors are taken out, it came in at a .2% increase, much more manageable.

Several Fed Governors gave speeches this week, and all of them warned of the threat of unchecked inflation. Today Alan Greenspan, the ex Fed Chair once known as God, said in a speech that “The worst is over for the credit crisis, or will be soon, and there’s a reduced possibility of a deep recession.” The markets have always reacted to Greenspan’s pronouncements, and even though he is no longer in office, he still has a lot of persuasion power. The conventional wisdom now holds that the Fed will need to hike rates to slow down inflation, possibly before the end of the summer.

I do drive and I do eat, so I can see the inflation first hand. But my bet is that the Fed is giving a head fake to raising rates and will try and keep their tightrope walk going as long as they can. The credit crisis may be over on Wall Street, but it is alive and well on Main Street. Mortgage lending is still tightening and the housing sector is still a long ways away from recovery. Higher rates will cut down on inflation at the expense of the overall economy. This means more bankruptcies, more foreclosures, more pain. I don’t see this happening - especially not in an election year - unless the readings are so dire that there is no choice. Besides, give it some time and there is a good chance that the inflation will come down on its own.

Much of the inflation is due to the high demand for commodities in developing countries overseas. India and China have been booming and they are growing a huge middle class. This brings a desire to increase their standard of living, which means more cars on the road and an improved diet, so food and fuel prices go up. This trend will be with us for a while, but there are signs pointing to a slowdown in Asia, and if there is this will reduce inflation by itself. The other thing that makes me think this will come down on its own is the trading activity. I have a friend who is a trader at the Chicago Mercantile Exchange where he trades contracts for cattle futures. Futures contracts are traditionally used as a hedging device. So if McDonalds wants to lock in the price of their hamburgers 9 months from now, they buy contracts on the exchange and they know what their costs will be going forward. This exchange has traditionally been used by farmers and food producers to take some of the ups and downs out of the market and measure their risk. So who are the big buyers of cattle futures today? They’re not food producers; they are financial companies, some of the same big players who created the bubble in the mortgage market. They are buying futures in all the commodities from grains to oil. The reasoning is sound. Prices are going up, so they need to buy the futures and take advantage of the rising prices. Only their buying divorces the price from any fundamentals of supply and demand. Food and fuel prices are in a bubble now, and at some point this bubble will pop and prices will go down. The question is when, and it could get much worse before it gets better.

Mortgage bonds got whacked this week, resulting in the highest mortgage rates we’ve seen in the last 6 months. Today the market was up much of the day, but the rally fizzled and the bonds ended with another bad day. Rates have moved up over the last few weeks, but if you have a contract, unless you are a real gambler, this is a market to lock your rate in at application. Rates very well could improve in the weeks ahead, but when a trend is underway it is a real risk to buck the trend.

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    6.50%     6.664% APR

15 year fixed rate    6.00%     6.175% APR

5-1 A.R.M.               5.625%   5.788% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.875%    6.997% APR – Requires 20% down payment

7-1 A.R.M.*              6.125%    6.327% 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   6.25%     6.587% APR

With no origination fee –        60 day lock

30 year fixed rate   6.50%     6.788%

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth. let me know how I can help. In the meantime, check back for more mortgage and real estate news.

Illinois Mortgage Rates and News

Peter Thompson is illinois Mortgage Broker



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