Rates are set to rise

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At the time of this article was written, the unemployment rate had just dropped to 7 percent and the economy’s three-month average of job creation was approximately 180,000 per month. While this number was far from being great, at least it was moving in the right direction.

On Feb. 1, Janet Yellen will become the first female Federal Reverse board chairperson. While she is known for being less concerned about inflation and willing to keep rates down longer, other economists are convinced that the Fed will have to start reducing its bond purchases, which will undoubtedly increase interest and mortgage rates. This will be the first step in taking off the training wheels and seeing if the economy can begin rolling along on its own.

Since May of 2013, we have seen rates go up from the mid-3s on a 30-year fixed to the mid 4s by the end of 2013. I am expecting that if the economy is doing OK and if the Fed does pull back on their purchases as expected by the middle of 2014, mortgages rate will breach 5 percent and ultimately move to 6 percent, or even higher if the Fed completely stops buying mortgage bonds.

The message? If you’re looking to buy or refinance a home in the near future, you need to take a serious look at doing something very soon, because waiting will cost you quite a bit of money.

The refinancing volume locally is unofficially down more than 60 percent, and many mortgage companies have downsized their staffs because they are not anticipating rates coming back down to where they would see that volume come back.

But be forewarned. If the Fed begins to taper its mortgage bond purchases and the real estate market or the economy stalls, we could see the Fed go back to its original level of purchases or decide to stay in for a much longer period of time at the new reduced level.

One thing is certain. There will be some excitement in the markets once the Fed starts tapering because we will be entering unchartered territory.

For more, call 773-557-1000 ext. 15, e-mail ron@ronmortgage.com or visit www.ronmortgage.com.

About Ron Ricchio

Renato (Ron) Ricchio is president of Chicagoland Home Mortgage. He grew up in Westchester and attended St. Joseph High School and DePaul University, taking a job as a loan officer in the mortgage industry soon after graduating with a bachelor's in finance in 1991. He started his own company in 2001, which he operates today. He has been ranked in the top 150 loan originators in 2010 and 2011 by Origination News. Ron is happily married with three beautiful children. A board member of San Francesco Di Paola Society and the founder of Ricchio Family Toy Drive for Lurie's Children's Hospital, he enjoys cooking and spending time with family and friends.

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