Breaking from the consensus that mortgage rates would stay around 7% for most of 2001, one analyst is now saying he expects the broader economy to rebound in the second half, bringing rates up with it.

"We still have pain to endure, but the building blocks for economic improvement are being put in place," said Keith T. Gumbinger, vice president of the financial forecasting firm HSH Associates in Butler, N.J. "There could be space for mortgage rates to fall, but the factors that would cause that seem to be behind us."

Doug Duncan, chief economist at the Mortgage Bankers Association, also said he is optimistic about the economy in 2001.

"Some foresee negative growth in the next quarter, but we're not predicting that for the first half," he said. "It's going to be pretty flat, with a pickup in the second half."

After peaking in mid-May at 8.64%, the average 30-year fixed rate fell as low as 6.98%, in the week of Feb. 8, according to Freddie Mac's weekly survey. Since then, it has crept back to 7.12%.

Mr. Gumbinger said mortgage rates are not indicative of short-term conditions but rather reflect "the environment coming," such as inflation prospects.

For example, he said, mortgage rates fell during the second half of last year in anticipation of Federal Reserve action but stopped their skid soon after the Fed first cut interest rates on Jan. 3. The Fed's willingness to act, he said, paved the way for gradual economic improvement, and as a result, mortgage rates have flattened out in the last month.

"We probably won't have outsize growth,' Mr. Gumbinger said, "but a more solid footing is likely over the coming months."

The mortgage industry is often called a countercyclical business, meaning that a slight chill in the economy usually means good news for mortgage lenders and related businesses. Mortgage stocks have soared in the last eight months - including Fannie Mae, Freddie Mac, Countrywide Credit Industries Inc., and the West Coast thrifts - and a three-month-old refinancing boom has bolstered many lenders.

To be sure, most economists have other ideas about the economy's direction. The chief economists at both Fannie Mae and Freddie Mac say mortgage rates will stay low - and maybe go even lower - because the economy will remain weak throughout the year.

"I think rates will stay in the order of 7% because inflation is low and the economy is slowing," said Robert Van Order, the chief economist at Freddie Mac. He speculated that further Fed action could send mortgage rates under 6.75%, leading to a "record year for originations."

But Mr. Gumbinger cautioned that consumers still provide the lion's share of economic activity and home borrowing. If they lack the confidence to spend, he said, that would probably outweigh all other factors. The main questions for the industry, he said, should be "What is the consumer going to do? What sort of spending patterns are going to show up?"

Fannie Mae chief economist David Berson argued similarly, saying that Fed action would probably prompt lower mortgage rates and that rates would stay low this year - but that people's confidence in their ability to buy homes would also wallow in the depths. If confidence is down, he said, people will buy fewer homes.

"While a drop in mortgage rates will be able to mitigate, but not completely mitigate, other factors, the housing market will continue to slow down," Mr. Berson said.

Thomas M. Garvey, executive vice president of national production for Edison, N.J.-based Chase Home Finance, a unit of J.P. Morgan Chase & Co., said the biggest recent movement in his company's mortgage rates took place when he and his colleagues set them in January so that Chase Home Finance could determine its budget and expenses for the year.

Mr. Garvey said it was an "even money" bet whether rates would go up or down in 2001 but that either way he is certain a major mortgage boom will have begun by yearend.

"It is not often that you reforecast your annual production twice in the first month of any given year," he said. "In both cases, and in our view to this day, production will be bigger in 2001 - even bigger than would have been thought months ago."

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