people getting home loans.

Last week, the U.S.

mortgage rate top 7% for the first time since January 2025.

That's after the Federal Reserve hiked interest rates by a quarter of a percentage point earlier this month.

The Fed says the increase was driven by rising inflation, but it could spell bad news for an already strained housing market.

Here to break it all down our David Boyd, president of the Real Estate Development group, Chicago neighborhood Initiatives.

So Radar Chapman, director of applied Research at the Woodstock Institute.

And Dennis Rock in residential real estate reporter for Crain's Chicago Business.

Welcome Back, everyone.

Thanks for joining So Dennis, as we said, the Fed raised interest rates earlier this month for the first time since 2023.

How's that going to impact the housing market?

>> Well, it most likely will make the cost of borrowing higher.

Mortgage rates have gone up, but not quite as much as the Fed's benchmark rate has gone up.

The thing we're seeing in Chicago, though, not really having much of an impact when rates went up in 2022, we didn't see.

But buying fall off quite as much as it did in other cities and throughout this relatively high rate climate, we've continued to see a large number of and prices rising.

Unlike what's going on in most other big cities.

Yeah.

What I want to come back to that the radar want to get you in here because federal lender, Freddie Mac a place the U.S.

mortgage rate at above 7% for the first time.

>> Since January 2025.

What does that mean to someone who's trying to buy a home?

This will increase their monthly housing costs.

>> For those that are answering the market would also limit the supply, the people that are currently in their homes will be less likely to sell.

So by a game at a higher rate.

So they have that lock in effect.

Currently will push the debt to income ratio for potential borrowers up.

Reducing their purchasing.

Power are already saying that age of first-time home buyers is at a historic high at 40.

And we're also seeing that people are forming fast forming families later in life.

So that is going to impact the delay of people buying homes.

All that, okay, David, according to the Illinois Realtors Association, the state faces a shortage of 142,000 homes.

We have talked about this before.

>> Could this decision by the Fed exacerbate the shortage?

Oh, absolutely.

I mean, I think when you look at the impact of any kind of rate increase, looking at both the building and the by side and on the build site.

>> You're going to see construction materials continue to increase, whether that's because a tariff or highest interest rates.

You've also you know, the costs to borrow.

So that all gets pushed onto these construction projects.

And that's on the build site on the Buy side is that it's mentioned you, you know, for every uptick, you see mortgage rates, you disqualify families.

So for every quarter point interest rate, you know, across America, you're limiting over a million people Chicago.

That's 10's of thousands of people that are not qualify for mortgages when they see interest rates go up.

>> Dennis, the housing market, it wasn't in the best place before the Fed increased rates, especially in Illinois.

So the median sale price for homes in Chicago hit $425,000 in July.

That is according to data from Illinois of Realtors.

That's a 13.3% increase from last year.

What's been driving that increase?

>> Take inventory.

The lack of homes to buy.

There are so few homes on the market in August of 2026. in the city, there were 23% fewer homes to look at.

If you are buying then a year before Metro wide, there was 11% less in August 26, then in August 2025.

I've got to get a house because I just got a job on the other side of the metro area.

We just had more children.

We've just formed a family.

I need a house.

So I'm going to pay whatever it takes.

I have to pay up.

I have to pay premium.

We're seeing a very large proportion of homes sell for more than 100% of the asking price.

That's really the bottom now on property comes on.

The market is 100% is the least you're going to pay and you're going to go up from there.

And this is even with, as I said earlier, interest rates rising home prices, rising interest rates rising.

That's a double double whammy, but we're still seeing sales.

What does that tell you?

Just?

I mean, if people are still able I mean, are they buying within their means right of people are still able to pay that much.

They're paying a premium both on the cost of the house itself and the cost of borrowing but there still and they're doing it because they need 2 people are still getting into the houses.

Anyway.

Well, as David said, some people have been eliminated as prices rise.

Some people decide well, that I guess I have to keep renting or >> I guess I need to double up or something like that as interest rates go up.

Some people who were thinking of buying decide they'll go ahead and rent.

But what we're seeing is that it's not turning everybody off.

I'm finding a way if I'm a young by may be getting more money from may parents that I would have in the past.

My parents may have said, boy, this is really going to cost you a lot.

I was going to give you this money Graterol give it to you now and there are other ways people wealthy.

People drawing on the stock market.

I may have crypto wealth.

People are finding ways to afford homes as both sides of the equation rise interest rates and prices.

>> David, how does this interest rate hike impact developers?

Does that make it more expensive to build?

Yeah.

Makes it more expensive bill that makes expensive more expensive to borrow money and and the commodities and and labor costs continue to go up.

So I think, you know, to Dennis's point, I mean, the biggest factor in not seeing growth in supply its construction costs.

And when construction costs out pace, affordability, you get this huge gap between what it cost to build on what people can afford.

And that's unfortunately the situation rain in Chicago now is those that have means that have resource is yes, they can afford homes.

Those that are low and moderate-income get stressed and either have to defer or altogether for go the opportunity to buy a home.

So Sir, 8 or something you mentioned, millennials are the current generation driving most of the home sales.

Your research looks at what the unique challenges that they face in the home market as well.

Tell us about that.

Yes, I'm Millennials are currently 63% of Illinois's mortgage market.

So that 25 to 44 year-old is 63% of the mortgage market.

>> Where we're finding is that the disparities, the historic disparities still exist.

But we're also finding that the debt that millennials Kerry is non-work into debt.

So that includes the student loan.

That's the consumer loan that's in the installment loans which also create a barrier for the debt to income ratio, making them less desirable or higher risk for lenders.

So if we have a generation of borrowers that is not financially equipped to all the home.

>> And even if they do get in their home, they could be cash strapped so they get into their home.

And then all of in their finest breaks, etc.

We're creating a environment of financially fragile borrowers and then they might find themselves taking on debt to cover the cost of the furnace or air or whatever it might David, Howard developers have keep building despite increased costs.

>> Well, I think they just keep raising prices, whether that's home sales or rents.

It's it's a good thing to be a homeowner and a good thing to be a landlord these days.

It's not a good thing to to be to surrenders point to be a first-time home buyer.

And so I think builders are, you know, trying to find ways to cut costs.

We've we've looked into modular housing and manufactured housing as a way to maybe start to think about cutting costs.

I think the city can be doing more in terms of entitlement reform and zoning reform, helping get permits.

Push through quicker.

But there has to be an all-out attempt try to get costs down.

If we're going to see the supply start to increase the rate of even policy makers, policymakers should prioritize to bring down the cost of housing.

>> So I think initially it is a supply side, David, and then as have both said that that is fundamental.

If we do not create enough affordable housing people won't be able to get homes, but also think that we have to invest in mortgage, ready pipelines, so investing in the housing counseling agencies that work directly with communities create those mortgage, ready borrowers.

There's also some things that we can look at as far as the CRA and community investment policies.

>> Making sure that they still have their accountability to invest and Ella Mai communities, incentivizing best innella, my communities strengthening and not weakening the CRA.

And so everybody knows al in mind so moderate income, low to moderate Thank you so much.