A national survey of mortgage lenders late last week showed a decline in all mortgage rates nationwide, despite the Federal Reserve increase on short-term rates.

The average for the 30-year fixed-rate mortgage experienced the largest one-week rate decrease. Of the 17 cities surveyed by HSH Associates, Butler, N.J., Seattle had the largest decrease, dropping 44 points to 8.94.

The Fed's 50-point increase was widely expected. What most lenders were not prepared for was January's unemployment rate, announced Friday. Between the Fed squeeze and the first increase in unemployment since 1992, to 5.7%, the bond market rallied and interest rates dropped.

Economists said it was somewhat early to make a correlation between the economic indicators and interest rate activity. But the decrease in mortgage interest rates seems to be taking its cue from the bond market, which reacted positively to the early signs of an economic slowdown, which would be anti-inflationary.

"It takes anywhere from three to six months to react to the Fed change," said Keith Gumbinger at HSH. He said that while it had been widely expected that the Fed would raise rates, there was still some speculation that early signs of a slowdown might prevent the hike.

ARM activity has peaked and fixed-rate products will become more competitively priced as they become more popular, said David Lereah, chief economist at the Mortgage Bankers Association. He expects ARM rates to drift up over the next several weeks, but he did not think the decrease in mortgage rates was unusual.

"We've seen a runup in ARM activity, with it now at more than half the market, but that should probably be the peak," Mr. Lereah said. "I'm not surprised to see a modest decline" in rates, he said. The rally in the bond market may have wiped out much of the upward pressure on the yield curve in anticipation of the Fed hike, he said.

"It depends how much was built into prices in anticipation to the hike," Mr. Lereah said. ARMs went up with the last rate increase, he said. "Some was built in, but there was still an upward drift in ARM rates."

A sense of relief spread through the industry once the Fed had raised rates. The gap between fixed and adjustable rates would have to shrink even more for the fixed to become competitive, but it is getting close, experts said.

"Everyone is relieved the increase is over and indeed it did happen," said Sam Lyons, senior vice president at Great Western Financial Corp., Chatsworth, Calif. "The economy slowed down a little. The stock and bond markets took comfort in that."

Interest rates are taking their cue from the bond market these days, decreasing as the economy slows.

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