Mortgage Rates May Stay Low but They'll Rise from Historic Lows, Broker Sa

2003 should be another great year for low mortgage interest rates, says the head of the California Association of Mortgage Brokers.

But the string of "lowest-ever" mortgage rates announced over and again during much of last year will be history, predicts Ted Grose, a Los Angeles mortgage broker who also is president of the association.

Instead of rates hovering around 6 percent, expect 7 percent, he says.

"A 7 percent world is not bad for the real estate market in general, but you're going to see an end to the refinance mania," he said. "The refinance market is virtually going to disappear at 7 percent." The home-sales market has been soaring in most parts of California over the past couple of years, because there's far more demand than homes for sale and because mortgage rates have been consistently low.

Pent-up demand for California homes will keep the market strong even, with mortgage rates moving up 1 percent or so and with affordability continuing to be a concern, especially in Southern California, Grose said.

"Historically, 7 percent is still a great rate to get."

He said he expects mortgage rates to be well on the way to that level by the third quarter if not already there by then.

Doug Duncan, the chief economist of the Mortgage Bankers Association of America, predicted another strong year for the real estate finance industry, even while forecasting that a gradual rise in interest rates this year will "tail off" much of the refinance boom of the past two years.

Most people interested in refinancing have already done so, he said, and mortgage activity will likely wane as the refinance business tapers off. But home sales will continue to be strong, though home-price appreciation will slow, he said.

"Even though rates will start rising to around 7 percent by the end of the year, in the first half they'll stay around 6.2 percent, which should encourage plenty of activity," Duncan said.

Last year, mortgage rates dropped to record lows eight times, sinking to 5.93 percent for a 30-year, fixed-rate mortgage for the week ending Dec. 27, according to the national mortgage company Freddie Mac.

That was the lowest since Freddie Mac started tracking 30-year mortgage rates in 1971.

Rates sank last week to a record low of 5.85 percent, the mortgage giant said, citing sagging consumer confidence and the potential for war with Iraq.

Grose said he thinks that when rates move up, it will happen quickly.

Mortgaged-backed securities are overbought, he said, and if the market continues gaining strength, "with even a mild level of comfort, the average investor will shift from the safe haven of bonds into the equity market."

"When it happens, it could happen overnight."

Dan Ward, the regional sales manager for Washington Mutual's Northern

California retail-lending division, said that if interest rates jump, that would significantly affect refinancing activity for his division, which last year had a record loan volume of $ 7 billion, he said.

That was up more than 60 percent from the $ 4.3 billion in loans handled in 2001, he said. About 70 percent of loans were refinances.

Although a 1 percent or so climb would sharply curtail the refinance market, the purchase market should hold or even improve because of pent-up demand for homes in the region, Ward said.

"I anticipate we're going to continue to be in a good climate," he said. "We'll be in a normal market, which is still good."

Actually, Grose said, people have become spoiled by such consistently low mortgage rates.

"We have a whole generation of home buyers and real estate people who think this is the real world," he said. "Well, historically, this is an aberration, the last two or three years of mortgage heaven that we've been in."

Dale Gray, the chief executive officer of the Central Valley Association of Realtors, said he expects rates will climb up to the mid- to high 6 percent range this year.

"I don't see any significant impact except for first-time home buyers trying to get into the market."

Related links:

1. Rushing to Refinance? Here's a Roadmap
2. Low Rates Reignite Rush to Refinance; Stampede is Greater than Last Fall's
3. Low interest rates have homeowners beating down bankers' doors; Mortgage mania