Welcome to Illinois Mortgage Rates and News week in review for the week ending July 24th, 2009, my take on the week’s financial news and how it affected Chicago Illinois mortgage rates.

Mortgage interest rates are now almost entirely based on what is happening in the stock market. Money moves back and forth based on what investors think will be their best investments at that time, and like a herd on the western plains, the stampede in one direction can change to another direction at a moments notice. When the future looks bright and optimism is in bloom, money flows into the stock market and bonds (including mortgage bonds) suffer. When pessimism rules there is a flight to quality. Stocks dive and the fast money rushes into the safer investments like fixed income securities and mortgage backed securities. So as I’ve said before, bad news is good news for mortgage rates. Right now Wall Street is positively giddy with optimism. The stock market has surged through a level of resistance (on low volume, though) and mortgage bonds suffered. Mortgage rates were up slightly again for the week.

A big part of the stock market rise is due to better than expected earnings. This is good news, but like so much of this economy, the better than expected earnings don’t tell the whole story. Earning expectations have been steadily lowered as the economy sank, so when the companies numbers beat the street estimates, it was mostly because the hurdle was set extra low. Also, earnings for most of the companies reporting haven’t been a result of higher sales, but because they have reduced costs. Much of the reduced cost has been a result of layoffs and cutting back on purchasing and supplies. This may help their numbers in the short term, but what happens next quarter when they can’t reduce costs anymore? A lot of the betting now is based on the expectation that the economy will recover quickly (the V shaped graph) like a normal recession. A lot of economists are now saying that this won’t be the case, and an L shaped recovery where we bump along the bottom for a while is more likely. A fast recovery will be hard to achieve when consumers aren’t spending money and employment is still rising. The stock market may be getting ahead of itself and due for a fall, but if it keeps rising, mortgage rates are along for the ride (higher).

One source of optimism this week was the report that existing home sales have increased more than expected, and are now at an annual rate of 4.9 million homes sold. This compares to a bottom of 4.5 million (still a long way from the peak in 2005 of 7.5 million). More importantly, the amount of existing homes available for sale has dropped, and the inventory is now at a 9.4 month supply – the best level in a long time. This is good news, and a necessary step in the home market stabilizing. But this doesn’t tell the full story. These figures don’t account for all the shadow inventory of homes in default or foreclosure and not on the market yet. The inventory ratios also don’t count all the homeowners (and there are a lot of them) who want to move, but aren’t able or willing to with home prices the way they are now. If home prices start ticking higher, we will see a lot of new homes come on the market from these hopeful home sellers. This also doesn’t show that the market has divided based on price points. Homes that are in the lower price ranges are selling actively (especially to first time home buyers) and financing for these homes is readily available through FHA and conventional mortgages. Higher priced homes are a different story. The Jumbo loan market has never recovered, so financing is more expensive and harder to find, and because so much of the market at the lower price levels is made up of foreclosures and short sales, there aren’t as many move up buyers to buy the higher priced homes.

On the other hand, real estate is local, and some areas are doing quite well while others are still declining. The $8,000 first time home buyer’s tax credit is bringing in a lot of first time home buyers, and with the deadline of November 30^th approaching, sales are likely to increase steadily over the coming months. Longer term, population continues to increase even as new home starts grind to a halt. With supply constant and demand increasing, prices will start to rise again within the next few years. This article (hat tip to The Big Picture) makes a great case for the housing market bottoming out sooner than many may think. The wild card is still the high level of unemployment. High unemployment means more foreclosures yet to come, so supply will continue to increase for some time. But real estate is and always has been a long term investment. If you are buying for the long term this should be a great time to buy.

If you are looking to buy your first home, make sure you allow enough time to take advantage of the. The credit expires after November 30th of this year. If you are thinking of buying this year, make sure you get your Chicago mortgage pre-approval so you are ready and able to meet the deadline.

Here are the current Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee. The conventional and FHA rates 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 (Illinois mortgage company) 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              5.375%     5.562% APR

15 Year fixed Rate             4.75%       4.884% APR

5-1 A.R.M.                         4.25%        4.328% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          6.875%       7.126%

7-1 A.R.M.                        5.50%        5.683% APR

(Another option is to break your Jumbo loan into 2 parts – conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

FHA LOANS – 3.5% down payment – FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate              5.25%      5.738% APR

With no origination fee – 45 day lock

30 year fixed rate              5.50%      5.729% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate            5.25%      5.548%  

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage 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.

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