Chicago’s housing market could see a “feeding frenzy” next year if mortgage rates continue to slide off the Fed’s easing interest rates, but where rates and the market are going is uncertain.
Mortgage rates aren’t directly affected by the Fed’s interest rates. They track closely to the 10-year Treasury bond and usually move in anticipation of what the Fed will do. Rates have been falling fairly steadily all year, and they reached their lowest point this year before last week’s rate cut, according to Freddie Mac.
Brokers said they’re hopeful mortgage rates below 6 percent could be on the horizon if the Fed cuts interest rates further this year as it indicated and keeps up an optimistic view of the economy.
Whether the Fed’s signal on interest rates will bring mortgage rates down further isn’t clear yet. The 10-year Treasury yield and mortgage rates ticked up slightly in the days following the Fed’s announcement, partially owing to lower jobless claims announced Thursday. But the 30-year mortgage rate is still on the lower end of the last three years, at 6.35 percent as of Friday, according to Mortgage News Daily.
“All the conversation of where it’s going, I don’t think anybody knows where the rates are going to go,” said Yuval Degani, president of brokerage services at Baird & Warner. “If you look at all the estimations of the last three years, the forecasts, they never happened.”
But if lower mortgage rates do come, the early months of next year could be a “feeding frenzy,” Fulton Grace Realty broker Patrick Shino said, as more buyers pour into the market and their buying power grows.
Chicago’s housing market has been saddled by low inventory the last few years, driving prices up and creating competition for scarce listings. Homeowners locked into 2 to 3 percent rates aren’t selling, and the buyer pool isn’t drying up. Home prices have increased year-over-year each month for almost two years straight, and active listings have been trending downward since 2020, according to Redfin and the Federal Reserve.
Lower rates will help with the scarcity, unlocking some inventory as homeowners who have been holding out on moving put their houses on the market. Jenny Ames, a broker with Engel and Völkers, said she thinks the market will start to normalize as people who have been wanting to move take advantage of the lower interest rates, freeing up homes for other buyers.
“I don’t know that prices are necessarily going to come down right away because we’ve had this scarcity issue,” Ames said. “But over time, if rates come down and stay down and the logjam breaks, then I think the pressure on inventory will start to ease and we’ll start to see a more normal market.”
But Shino said he doubts the added inventory will keep up with the demand that will grow alongside it. First-time buyers who missed out on interest rates below 3 percent will be eager to lock in properties if rates dip below 6 percent.
“They’re not going to want to miss out on it again, and I think you’re going to have far more buyers flooding into the market,” Shino said. “There’s no way there’s going to be enough inventory to satiate that buyer demand.”