Anxious Americans spurn ultra-low mortgage rates
By Holden Lewis • Bankrate.com

Feeling anxious?

If so, you aren't alone. Fewer people are applying for home loans, even though mortgage rates have reached a modern-day low.

The benchmark 30-year fixed-rate mortgage fell 2 basis points to 5.94 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 0.39 discount and origination points. One year ago, the mortgage index was 6.92 percent.

This is the lowest 30-year mortgage rate since March 1966, when the average rate on an FHA mortgage was 5.7 percent. The previous modern-day low of 5.96 percent had been reached three times in the last six weeks.

With such low rates, you might think that people would be clamoring to buy houses or to refinance their mortgages. But potential home buyers aren't so eager to purchase. And lots of homeowners could benefit from refinancing, but don't follow through after they talk with a broker or lender. People seem sort of paralyzed. Everyone is waiting for the war to start.

"This whole thing has put a lot of it on hold," says Ray Champion, president of Pro Mortgage Corp. in Dallas. By "this whole thing," he means the prospect of war in Iraq. People worry, feel anxious, fret about the future.

When Champion takes applications from home buyers, he instructs them what to do next to get the loan paperwork moving. Next thing he knows, they have put off their decisions to buy. "They're just kind of waiting for this to play out a little bit," he says. "I think their concerns are the overall economy and that their job positions might not be so safe."

It's prudent to put off buying a house if your job is insecure. But some homeowners are reluctant to refinance, even if Champion can demonstrate that their monthly savings will offset the costs of the new loan in just a year. Lower monthly payments would help these people if they lose their jobs. Still, they are reluctant.

People feel the anxiety all over. Despite historically low interest rates, mortgage applications dipped 5.1 percent last week, according to the Mortgages Bankers Association. Purchase applications declined 12 percent and refinance applications were down 3 percent. Almost three-quarters of applications were from homeowners wanting to refinance their mortgages, which goes to show that reports of the death of the refinancing boom have been greatly exaggerated.

Economists are in near-unanimous agreement that businesses won't hire workers or invest in new equipment and buildings until after the war is resolved. Rank-and-file employees feel this anxiety in their bones. And they know this: If you are worried about your job, you should be.

Not that you need another thing to worry about, but Alan Greenspan, chairman of the Federal Reserve, warned Congress this week about the long-term effects of huge federal budget deficits: higher interest rates.

It's common wisdom that federal budget deficits push interest rates (including mortgage rates) skyward. But some economists have argued that the common wisdom is wrong -- that there isn't really a connection between deficits and high interest rates. Instead, they contend, interest rates reflect the market's expectations of inflation. Politicians, notably policymakers in the Bush administration, have adopted this theory to explain why this year's projected $304 billion budget deficit isn't really a big deal.

Greenspan emphatically disagrees with the Bush administration about the impact of budget deficits: "Contrary to what some have said, it does affect long-term interest rates and it does have an impact on the economy," he said Tuesday in response to a senator's question.

Greenspan implied that if the United States defeats Iraq handily, he expects the economy to grow more rapidly. That would mean an increase in long-term interest rates.