NEW YORK -- As the Jan. 15 deadline approaches in the Persian Gulf crisis, the nation's mortgage market has fallen into limbo.
Until this week, interest rates on fixed-rate mortgages had been falling steadily for a few months, reaching the lowest level in nearly four years. Experts were predicting an increase in the number of new loans, particularly in home refinancings.
But the heightened risk of war has now thrown that view into some doubt. Wednesday, for example, failed peace talks led to an increase in fixed mortgage rates to 9.85 per cent from 9.70 percent.
Fixed-rate mortgages averaged 9.63 percent this week, up from 9.56 percent last week, according to a national survey released yesterday by the Federal Home Loan Mortgage Corp. and reported by the Associated Press.
On one-year adjustable-rate mortgages, lenders were asking an average initial rate of 7.76 percent, down from 7.78 percent last week and the lowest since 7.66 percent during the week that ended May 13, 1988.
The rates do not include add-on fees known as points.
"We're all apprehensive at this point about what's going to be happening in the market," said Christopher Dunn, an executive vice president at Boston Five Cents Savings Bank. "The economic news and the war news are just not all that good."
The home-loan arena is highly sensitive to shifts in the economy because most lenders price their loans with an eye to bond markets.
Amid volatility in the credit markets, lenders have been adjusting their rates -- mostly upward.
Executives and analysts say a persistent rise in mortgage rates could choke consumer demand, which already is low because of the expanding slump in housing markets.
The fear is that war will break out, sending oil prices and inflation higher, which in turn would lower long-term bond prices and raise mortgage rates. Consumer confidence would also be expected to decline.
By contrast, resumption of the steady rate decline that began in October could spark a pickup in home refinancings and, eventually, home sales.
Several economists -- assuming no war -- have predicted that the recession would push mortgage rates down to as low as 9 percent by midyear, encouraging more variable-rate borrowers to lock in fixed rates.