Article by Diane McCabe 2002: Who would have guessed? At this time last year, as mortgage interest rates climbed back from a post-Sept. 11 slump, people said we'd seen the end of sub-6 percent rates on 30-year mortgages. They had been a temporary boon for refinancers, but now mortgage rates were headed up, up and away. At first, that prediction wasn't too far off. During the first part of the year, Orange County's average for 30-year fixed-rate mortgages rose, but it remained below 7 percent (with a fee of 2 points). Then, come July, the average dropped below 6 percent and stayed there. (September saw a record low of 5.549 percent.) Thank the wobbly stock market, which pushed investors into bonds, which in turn pushed down rates. 2003: Expect rates to stay at or near the current low levels for the first part of the year. Experts don't see the economy changing substantially in that time. That means the Federal Reserve, whose moves indirectly affect long-term mortgage rates, is unlikely to increase key short- term rates. Raphael Bostic, associate professor at USC's Lusk Center for Real Estate, looks for interest rates to begin rising in midyear, with a more ''substantial upward movement in the late fall of 2003, when the economy enters a full-blown recovery.'' Possible spoiler: A pending war with Iraq muddies the economic picture. Shareholders, already rattled by terror attacks and corporate scandals, are taking a wait-and-see attitude. If they get spooked and make a fresh push into bonds, mortgage rates may stay low for a longer period. If the economy rallies quickly and folks move back into stocks, rates may rise more rapidly.
