Low mortgage rates puzzling; Loans are hovering around 5.23% with a fee of 2 points, lower than a year ago, despite a growing economy and the Fed raising short-term rates.

Mary Ann Milbourn It's a puzzle that has all the experts scratching their heads: How come mortgage rates haven't gone up? For a year they have been predicting that record-low mortgage rates would soon be history. And by all accounts, the experts should have been right. The economy is growing. Corporate profits are up. Employment is improving. And the Federal Reserve has increased short-term interest rates five times since June after four years of reducing them. All these things typically would point to higher mortgage rates. But, as of Thursday, the average 30-year, fixed-rate mortgage in Orange County with a fee of two points was 5.231 percent. Despite dire warnings, that's actually lower than this time last year, when the rate was 5.329 percent. ``This is actually one of the mysteries of the economy,'' said Raphael Bostic, director of USC's Casden Real Estate Economics Forecast. He attributed it to 10-year bond rates, which are a better predictor of mortgage rates than the short-term rates the Fed controls. The bond market, after a run-up in the spring in anticipation of the Fed hikes, has trended down since then. Bostic thinks the bond market was nervous about the outcome of the presidential election as well as the robustness of the economic recovery. Now, with the election decided and the economy still growing, Bostic thinks rates for mortgages and 10-year bonds inevitably will rise. ``My guess would be (mortgage) rates will be in the 6.5 percent range by sometime next year,'' he said. Al Hensling, president of United American Mortgage in Irvine, agrees that all the factors point to higher mortgage rates, although he thinks there's only an outside chance of mortgage rates as high as 6.5 percent next year. ``I think it will stay in the 5.5 percent to 5.75 percent range,'' Hensling said. He thinks a blip up in mortgage rates in early October was in anticipation of the Fed raising rates even higher than they have. When that didn't happen, he says the markets stabilized. Still, he says you can't rule out more surprises next year. ``We possibly could see rates dip if the global economy sees a downturn,'' Hensling said.