DeBat: Summer brings great selection and prices, higher mortgage rates

Don DeBatThe forecast for summer house-hunting in the Chicago area is pretty clear: The market has some of the best selection of well-priced, new and resale homes and condo choices in years.

The only clouds on the horizon are the threat of higher mortgage rates for luxury home buyers and those who wait to buy, and tougher loan qualification standards for everyone, experts say.

After about eight months of relatively stable, 6-percent home-loan rates, benchmark average 30-year fixed mortgages jumped to 6.32 percent in mid-June from 6.09 percent a week earlier, according to Freddie Mac’s Primary Mortgage Market Survey.

Last year at this time, 30-year fixed mortgages averaged 6.74 percent. The last time the benchmark-loan rate was higher was the week ending Oct. 25, 2007, when it averaged 6.33 percent.

However, buyers of luxury homes in the Chicago area should expect to pay more. In early June, most lenders were charging 7.5 percent to 7.75 percent on 30-year fixed jumbo mortgages, those larger than $417,000.

Experts say Freddie Mac and Fannie Mae’s reluctance to boost the jumbo-loan limit on mortgages they buy in Chicago to the $729,750 now allowed in other high-cost areas such as sections of California, Arizona, Colorado, Florida and the East Coast likely will have a slowing effect on the market for luxury homes.

Some luxury home buyers are side-stepping the low jumbo mortgage limit here by opting for a higher down payment and taking out two loans, one for $417,000 and a second for a line of floating credit for the balance.

“Mortgage rates jumped after a number of Federal Reserve Board officials expressed concern over a threat of inflation,” said Frank Nothaft, Freddie Mac vice president and chief economist. Some analysts believe the Fed will raise rates more aggressively over the year than previously thought, he said.

Interest charges on 15-year fixed mortgages also jumped to an average of 5.93 percent from 5.65 percent a week earlier. However, year ago at this time, the 15-year loans averaged 6.43 percent. In late October 2007 they declined to an average of 5.99 percent.

Meanwhile, one-year Treasury-indexed ARMs inched up to an average of 5.09 percent in mid-June from 5.06 percent a week earlier. At this time last year, the one-year ARM averaged 5.75 percent.

Not only are mortgage rates higher, but in the wake of the sub-prime loan shakeup, about 60 percent of domestic loan officers toughened standards on prime mortgages, according to a new Fed survey.

Analysts also are worried about a glut of unsold homes nationwide. However, serious house hunters who have a good credit score should look at the summer market as cherry-picking time.

Another positive sign is passage of housing bills by Congress that gives the Federal Housing Administration $300 billion in new lending authority and relaxes the standards to provide government-insured, fixed-rate mortgages to debit-ridden homeowners.

The legislation also gives states $10 billion in tax-free municipal bond authority for loans to first-time home buyers, construction of affordable rental housing and refinancing mortgages.

Real-estate columnist and media consultant Don DeBat has written about Chicago area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

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