Chicago Real Estate and Mortgage News for week of October 12, 2009

After reaching the lowest level that we have seen since May, mortgage rates finished the week higher than where they started as the result of some positive news on the economy and some inflation fears caused by Federal Reserve Chairman Bernanke in a speech on Capitol Hill last Thursday night. The better than expected news came in the service industry, first time unemployment claims and the U.S. Trade Balance. The Fed Chairman said that the low interest rate environment will likely be needed for awhile. However, he went on to say that as the economy improves, the Fed will hike rates quickly to ward off inflation. While inflation is not a problem now, it certainly could be down the road, and the ending may not be pretty for rates. There is little doubt that rates will eventually head higher, and the rates that we have seen over the last week or so could be the best we see, dare I say it, ever again in our lifetimes. The week ahead brings a semi-full calendar of economic news, starting on Wednesday.

In news regarding the first time homebuyer credit, there are several bills floating through Congress right now to extend and/or change the first time homebuyer credit. Remember, the last day to close and take advantage of the credit is currently November 30, 2009. Locally, the Illinois Housing Development Authority (IHDA) announced at the end of last week that the last day to register a buyer for the Tax Credit Advance loan is October 15. The Tax Credit Advance loan is the second mortgage that allows a first time homebuyer to borrow up to $6,000 of their tax credit and use it towards their downpayment. They are stopping registrations for the program, because they think that it will be difficult to get transactions that come together after that date through the approval process and close them by the November 30th deadline. They did say in their announcement that the program would most likely be extended if the first time homebuyer tax credit gets extended.

Let's take a look at last weeks economic news:

On Monday, the Industrial Supply Manager's Services (ISM) Index showed an increase to 50.6. The markets had been expecting a reading of 50. This reading is significant because a number above 50 shows an economy that is growing, while a number below 50 shows an economy that is shrinking. The latest report says we're headed in the right direction. On Thursday we learned that First Time Unemployment Claims dropped to their lowest level since January, while a much smaller decrease was anticipated. Although this looks like good news on the surface, 521,000 people would beg to differ with that opinion, even if it wasn't the 540,000 that was expected. Finally, on Friday, the U.S. Trade Deficit with the rest of the world was reported to have shrunk to $30.7 Billion. This number was great, considering the market was looking for an increase to $32.9 Billion from the month befores $32 Billion. In addition to these reports, and Chairman Bernanke's not-so-kind words, the markets also had to digest a three day treasury bond auction that did not go so well. It will now worry about future bond auctions to come. When treasury bond auctions do not go well, the rates on those bonds have to increase in order to attract interest (pardon the pun) and sell the bonds. As treasury bond rates go up, so do mortgage bonds rates and mortgage rates in general.

In the week ahead, the bond market is closed on Monday for the Columbus Day holiday, and economic news will only be released on Wednesday, Thursday and Friday. However, the reports due that week include some market movers, like Retail Sales, the Federal Reserve Open Market Committee minutes, the Philadelphia Fed Index and the Consumer Price Index (CPI), which is a measure of inflation at the consumer level. After what the Fed Chairman said last week, the markets will watch all inflation numbers carefully to see if any will be the catalyst for future Fed rate increases.

I'll keep you posted on any updates!