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Guaranteed Rate Paints Third Quarter Picture in New Report

by James F. McClister

A third quarter report released by mortgage company Guaranteed Rate shows rising home prices and a newfound confidence in mortgage financing.

Late last week, national mortgage giant Guaranteed Rate released its third quarter mortgage trends snapshot, detailing the current state and trajectory of the market.

In Chicago, as has been reflected in past reports, purchase volume rose considerably, climbing nearly 10 percent quarter-over-quarter from 67 percent to 75 percent of overall loan volume. Among those figures, 15 percent were a result of adjustable rate mortgages, or ARMs, which rose 2 percent year-over-year, putting local levels just above the national average of 13.2 percent.

As a result of the swell and further persistence of buyer interest, home prices have similarly risen 10 percent year-over-year; the third consecutive quarter of double-digit percent increases, according to the report.

Home Prices Rise and Fixed Rate Mortgages Remain the Go-To

In Guaranteed Rate’s overall snapshot, the firm found that micro trends, as seen in Chicago, are playing out on the national scale, as well.

Purchase volume continues to grow, making up 73 percent of total loan volume, a 10 percent year-over-year gain, while refinancing has dropped by more than a third since 2013. The increase is indicative of improved confidence and optimism among potential buyers, but the extent of the gains was bolstered by a lull in last year’s market. According to the report, “the third quarter of 2013 was when the mortgage market began to account for higher interest rates.”

ARMs increased slightly to 13.2 percent of overall loan volume, less than a 3 percent year-over-year increase, but the 30-year fixed rate mortgage remained, by a considerable margin, the most popular financing option, making up three-quarters of total loan volume. Despite buyers showing a willingness to take on a riskier investment option, like an ARM, it seems the safe road is still the preferred one.

As was expected, considering the increased buyer activity, home prices continued their climb, with 2014’s third-quarter median price rose 8.1 year-over-year and 2.2 percent quarter-over-quarter. It’s likely the trend will carry into the New Year, not only because of an improved outlook for the market’s future, but also in large part to the sometimes crippling inventory shortages that continue plaguing large metro markets, like Chicago and Boston.

If prices continue rising with such rapidity, look for builders to introduce even more properties into regional marketplaces to help satisfy growing demand and further slow the pace of price gains.

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