Interest Rates and Impact on Closings

The Federal Reserve raised interest rates yesterday. They will likely raise them again this year and that is because inflation is higher than what they would like to see. That is good, let's get inflation down. The downside is that when you want to bring inflation down, that means you want to slow things down.

The chart below shows Chicagoland closed sales going back to 2008 (farthest data our MLS has). You can see back in August of 2008, which was in the beginning phase of the housing crisis, closed sales were about 73,000. Compare that to now where closed sales are... yep 73,000. That is largely due to the higher interest rates. You can see that in 2021 we had 139,000 closed sales which is almost double of what we have now. Then in 2022 the Fed started its increase in interest rates. That made closings drop significantly.

I'm not saying we are going to see a signficant drop in closed sales, yet. It depends on how far the Fed has to go with interest rate increase or at least that is a factor.

The chart below will show you the 30 year mortgage interest rate fluctuations. We are currently at 7.25% but that is lower than in 2024 when they touched 8%. The housing market was stronger then. We will see how these rate increases impact the local housing market especially coupled with a very high tax bill that just came out in the Cook County suburban market where tax bills increased about 20% on average.

The circled area below shows when the Fed dropped rates significantly during Covid and then the arrow when they raised them in 2022. You can see the correlation between the raising of rates and impact on closed sales in the two charts.

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