Mortgage rates stuck in low
By Holden Lewis • Bankrate.com

Mortgage rates continue to drift gently to and fro, like sea grass beneath the waves.

The benchmark 30-year fixed-rate mortgage rose 3 basis points to 5.99 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.38 discount and origination points. A year ago, the index was exactly one percentage point higher: 6.99 percent.

For six weeks in a row, the 30-year mortgage index has remained in a narrow range -- a high of 6.02 percent on Dec. 23 and a low of 5.96 percent on Dec. 31 and Jan. 22. Mortgage rates usually are more volatile than this: During the same six-week period a year earlier, mortgage rates varied from 6.85 percent to 7.25 percent.

Economists agree that investors' jitters about Iraq are responsible for the stasis in mortgage rates.

"The prospects of stronger economic growth accompanying more tax cuts, government spending and continued low interest rates apparently haven't been enough to create a significant surge in optimism more generally as the threat of war continues to weigh heavily on sentiment," writes Geoffrey Somes, senior economist for FleetBoston Financial, in a weekly commentary.

Translation: Consumers and businesses are focusing on war talk instead of paying attention to the good economic news out there. Until missiles fly in Iraq, investors are staying out of the stock market and keeping their money in safe Treasury notes. As they buy Treasuries, they boost the bonds' prices and drive down yields. Long-term mortgage rates tend to follow the yields on 10-year Treasury notes, which have been below 4 percent for most of the past two weeks.

While mortgage rates advanced 3 basis points this week, Treasury yields were virtually unchanged. That goes to show that rates don't slavishly track Treasury yields. It also reflects slightly increased demand for mortgages. Mortgage applications increased 6.4 percent last week, seasonally adjusted, according to the Mortgage Bankers Association.