Now that mortgages rates have dipped below the magic 6 percent barrier -- they fell to 5.99 percent last week, a level that hasn't been in more than 40 years -- the only question is, how low can they go?

At least one housing economist thinks there's "a real possibility" the trend could keep going until loan prices bottom out at 5.5 percent or so.

And if that happens, said Eric Belsky, executive director of Joint Center for Housing Studies at Harvard University, said at a recent conference in Newport, R.I., hold on to your cell phones and pocket calculators, boys and girls. The roof is about to fly off.

"If the market coughs up another 40-50 basis points," the economist told the New England Mortgage Bankers Conference, "we're in for a refi boom the likes of which have never been seen before."

As many as seven out of every ten loans now on the books could be "rolled over again," he predicted.

Belsky warned, however, that lower rates are far from a sure thing. Indeed, he cautioned that while the economy is in a dead stall in uncertain waters with "lots of rip currents" are on the horizon.

So far, it's been a "perfect storm" for housing, he said, continuing the nautical metaphor that is appropriate for the seaport village venue where he spoke. The recession has been mild with relatively little in the way of job losses, mortgage rates are at a 40-year low because of the collapse in the stock market, and money is rushing in bonds.

"The wind has been a housing's back for sometime," the Harvard economist said. "Everything's popping on all cylinders. Housing has been the anchor for the entire economy, but who knows how long it will go on."

The most difficult question to answer is how long consumers can keep hanging tough, Belsky said.

"It's amazing that (consumers) are still spending, but they are. They're not just putting their money under the mattress. They're investing and they're borrowing, which, at today's rates, is the smart thing to do," he said.

But in what he called an "ominous" sign, he noted that the savings rate has popped up to the post war average, a signal perhaps that the winds are finally beginning to shift.

One key to what the future holds is the "important" holiday season, the economist said. Another is the stock market.

If holiday sales are brisk, it means consumers are not yet ready to batten down the hatches, he explained. But if the stock market rebounds, interest rates will rise quickly and all bets are off.

"Consumers will continue to buy houses and refinance mortgages until interest rates start rising," he said. "And rates can run up really fast."

Belsky also is keeping a wary eye on employment figures. "If job losses rise dramatically," he said, "consumers can't keep going and we're in for some real trouble."

The Harvard economist said the business sector is another wild card in the murky economic seas. Currently, he said, business is nervously focusing more on the accounting scandals than on spending and investing.

The sector also is finding it difficult to drive through price increases because of global over-capacity, he added.

Published: October 2, 2002

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