Beginning of fighting triggers sharp rise in mortgage rates. (Wall Street West).

Historically low interest rates appear to have pivoted with the onset of war.

The war in Iraq has caused mortgage rates to rise sharply, according to the California Association of Mortgage Brokers. Between March 12 and March 18, mortgage rates rose from between one-quarter and three-eighths of a percentage point, to around 6 percent. The war will cause national rates to continue to rise, with Los Angeles area rates included, said Ted Groves, president of the California Association of Mortgage Brokers.

"If rates go up, affordability will go down," said Groves. "The tremendous volume of mortgage refinancing we've seen is going to end."

Graves said he didn't expect to see a real impact on housing demand until mortgage rates hit 7 percent. Refinancing activity will drop off once rates reach 6.5 percent, he said.

In the corporate bond market, the influential Newport Beach-based bond manager Bill Gross also sees interest rate increases.

Gross, who manages Pacific Investment Co.'s Total Return Fund--the world's largest bond fund--said an extended war with Iraq could swell budget deficits, which would lead to higher interest rates and inflation, according to Gross's March 2003 Investment Outlook.

Gross, a Vietnam veteran, also questioned the aggressiveness of the U.S. invasion of Iraq in his Investment Outlook. "I'm aware that Iraq is in noncompliance with U.N. resolutions and that its leader is a near madman. I'm also aware, however, of how absolute power corrupts and how we may be crossing a thin line," he said.