Mortgage rates barely budge
By Holden Lewis • Bankrate.com

Mortgage rates barely budged during what was a relatively quiet week in terms of economic data.

The benchmark 30-year fixed-rate mortgage fell 1 basis point to 5.67 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 0.42 discount and origination points. One year ago, the mortgage index was 5.96 percent.

The 15-year fixed-rate mortgage fell 2 basis points to 4.99 percent. The one-year adjustable-rate mortgage also fell 2 basis points to 3.68 percent.

The week's biggest pieces of economic news had to do with inflation and retail sales. The Consumer Price Index rose 0.2 percent in December, exactly what Wall Street had expected, and retail sales in December fared slightly worse than Wall Street had expected. The news didn't have a lasting impact on interest rates.

Mortgage rates have remained between 5.67 percent and 6.08 percent for four months now.

But can rates stay low?
How long will rates stay this low? For quite a while, say housing economists. In a conference call, economists for housing associations made their predictions about mortgage rates. The consensus is that rates will rise this year, but not by much.

David Seiders, chief economist for the National Association of Home Builders, predicts that the 30-year, fixed-rate mortgage will average 6.4 percent at the end of 2004, with most of the increase happening in the second half of the year, after the Federal Reserve hints that short-term rates will have to go up eventually.

Dave Berson, chief economist for Fannie Mae, predicts that rates will rise to somewhere between 6.25 percent and 6.625 percent at the end of the year. Paul Merski, chief economist for the Independent Community Bankers of America, won't predict where he thinks rates will go other than to say that he doesn't think they will rise much. If they do, borrowers simply will turn to adjustable-rate mortgages, which offer lower initial rates, he says.

David Lereah, chief economist for the National Association of Realtors, predicts "only modest increases in mortgage rates," although he doesn't forecast a firm number. He says there is a slight risk that rates will rise further than most economists are predicting if the federal budget deficit, financed through borrowing, "crowds out private borrowings," and if the trade deficit forces interest rates higher as Americans borrow to consume more than they produce. Lereah calls the budget and trade deficits the "twin towers" of economic risk.

Frank Nothaft, chief economist for Freddie Mac, predicts an optimistic scenario in which mortgage rates rise to about 6.25 percent at the end of 2004. "With family incomes rising, mortgage rates low, that translates into a superb housing market once again this year," Nothaft says.

Home buyers flocking to lenders
That seems to be the case so far this year. The Mortgage Bankers Association's purchase index -- a measure of the number of purchase loans that people apply for -- reached a record high for the week ending Jan. 16. The MBA credited low interest rates.

New home construction in December rose 1.7 percent from the previous month and 15 percent from the previous December. Housing starts reached their highest level since February 1984, interim housing secretary Alphonso Jackson says.