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WASHINGTON – Whether or not – and if so, just how much – the war in Iraq will boost the U.S. economy is one of the many uncertainties about the conflict, but credit union economic experts agree that the war has removed many of the uncertainties that were responsible for holding mortgage rates down. “The economy is perched to begin a long and gradual recovery. The uncertainty and fear of a possible war has delayed that recovery, but once you take away that uncertainty, that will get the recovery gradually going,” says CUNA Chief Economist Bill Hampel. CUNA Senior Economist Steve Rick said the association expects mortgage rates “to continue to trend down at least through the second quarter of 2003 and then pick up again at a slow pace by the third or fourth quarter.” Uncertainties about whether there would be a war have been holding mortgage rates down, but buoyed by the start of the war, mortgage interest rates started to inch up the week of March 17. According to a Freddie-Mac survey the week of March 17, the average interest rate on a 30-year fixed-rate mortgage increased 18 basis points to 5.79%, compared to 5.61 the previous week. But then as though reflecting continuing uncertainties, the 10-year Treasury note on which 30-year mortgage rates are based, fell below 4% on March 24, which was almost a six-month low. NAFCU Economist Jeff Taylor predicted continuing low rates will feed a sustained demand for refinancings “over the short term” and economic growth will be slow over the first and second quarters. “The mortgage market has sustained a soft economy and credit unions have seen a lot of repeat refis,” said Taylor. “That means when the economy starts to come back, housing will contribute less to the country’s gross national product.” He forecasted credit unions have about six months of mortgages in the pipeline before rates start to turn. But that too is based on the outcome of a lot of current uncertainties. “Until the economy comes back and consumers’ economic perspective and confidence in the economy returns, there are still a lot of unknowns,” said Taylor. Whatever happens, Hampel cautions that “the economy is not about to go gangbusters.” Mortgage rates, he offered, will continue to be “modest” for awhile. “If the war is short, then one of the clouds that’s been hanging over the economy will be removed,” Hampel said. But just how long the war will continue is one of the other uncertainties about the war. There is also the concern about domestic terrorism as a fallout of the war. “Domestic terrorism,” said Hampel, “could have a stronger effect on the economy than an entrenched war.” “There is nothing typical about this situation, war is unpredictable,” he said. Taylor agreed. “This is a tough time to forecast. You go through your best assumptions, but there’s no historic data to compare anything to because what we’re experiencing now is unique.” Taylor said credit unions should expect the uncertainty about the mortgage market to continue “until we have a better idea where the war and the economy are going.” He added that, “Once the market believes the Fed isn’t going to cut rates again, the economy isn’t going to get any weaker, and the Iraq situation is going to wind down, then we’ll start to see rates go up quickly.” Despite the record number of refinancings credit unions have processed, Hampel said there are still a lot of members and consumers who could benefit from refinancing their mortgages. If rates stay in the neighborhood of the high five’s or six’s, there could still be a lot more mortgage refinancing going on, he said. Rising interest rates could also push members who have procrastinated deciding to refinance in anticipation of further lowered rates, in to making a decision out of concern that rates may continue to go higher. “In the last several months, refis have been driving the mortgage market. But a short war and the removal of other uncertainties could stimulate home buying for the rest of the year,” said Hampel. -

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