Low Mortgage Rates Plus Stable Prices Are Good for Home Equity in Illinois

By Richard Barrington
Local Lender Columnist
May 12, 2008
A combination of factors has made this a good time for Illinois homeowners to consider a home equity loan. The only word of caution is that given fast-changing housing and mortgage conditions throughout the country, anyone in need of a home equity loan would be wise not to hesitate.

The combination of relatively stable housing prices in Illinois with lower mortgage rates means that homeowners should find their home equity levels nicely intact, while the cost of borrowing is less than it has been for the past few years.

Illinois Market Conditions

While some areas of the country have suffered from falling home prices and record mortgage defaults, the Illinois market has been relatively unscathed so far. A recent survey showed median home prices in Illinois down only 0.5% in 2007. This is very steady performance given the double-digit declines experienced in some part of the country. Chicago-area homes did better yet, with a 2.4% increase in median home price for 2007.

The only discouraging note in the survey is the drop-off in sales volume. There were 137,133 residential sales in 2007, down 16.9% from the figure of 165,003 in 2006. This rate of decline appeared to accelerate at the end of the year.

Appraisal Timing

The amount of home equity a homeowner has available is the difference between the market value of the house and the remaining mortgage balance. Therefore, any decline in market value would diminish home equity.

With Illinois home prices holding steady so far, homeowners in the state should find that their home equity has remained intact. However, declining sales volume is a sign that the market could be getting softer, as the supply of houses for sale builds up due to slowing demand. Anyone considering a home equity loan would do well to get an appraisal soon, before that softness shows up in home prices.

Mortgage Rates

So far, Illinois homeowners are fortunate that housing prices have held up. This helps preserve home equity, giving them more borrowing power. Meanwhile, the cost of borrowing has gotten cheaper.

Mortgage rates have been dropping steadily since last summer, falling by more than a full percentage point in total. Home equity rates will always be higher than primary mortgage rates, but they tend to move in the same direction, which would mean they too have become cheaper over the past year.

Again, the combination of stable home prices and lower mortgage rates makes this a good environment for home equity borrowing. Both prices and rates have shown a tendency to be volatile, so there is no telling how long this favorable environment will last.

Sources:

• Illinois Association of Realtors
• Freddie Mac

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.