MORTGAGE-RATE DIP MAY SET OFF NEW REFINANCE FRENZY.

Byline: GREGORY J. WILCOX 

A stock market stuck in neutral and cash-flush foreign governments may combine forces over the next few weeks to push open a refinance window as wide as the one of the summer of 2003.

On Thursday mortgage giant Freddie Mac's weekly survey showed that the rate on a 30-year home loan fell for the eighth time in nine weeks, averaging 5.65 percent.

That's the lowest level since it reached 5.57 percent the week of Feb. 10 and the low point the year.

Some think the rate slope remains slippery.

``Mortgage rates are going to be getting close to 5 percent in the next couple of weeks and that could set off another wild binge,'' said Alan Nevin, chief economist at the California Building Industry Association.

He notes that the yield on the 10-year treasury bill, the main driver of interest rates, dipped under 4 percent this week. It ended the week at 3.98 percent.

Thirty-year mortgages tend to follow the yield of the 10-year treasury bill. When the yield goes down, the long-term rate usually does, too.

``The stock market has gone nowhere and people have to put their money somewhere. They are buying 10-year T-bills and that's what sets the rate for the 30-year mortgage. It's as simple as that.''

When Nevin refers to people he's not talking about you and me. He's talking governments like China and Japan.

``China has so much liquidity they have to buy our bonds. They'll buy the euro and stuff but ours is the gold standard.''

Robert Kleinhenz, deputy chief economist at the California Association of Realtors, said the T-bill yield seems to be sending us a message.

``That certainly signals that the 30-year fixed rate is going to drop so there ought to be not only a refinance opportunity but it may trigger some sales activity.''

That will make a hot market even hotter, at least for the first part of the summer.

Kleinhenz also notes that the core rate of inflation is about 2.5 percent and a T-bill yield low by historical standards will also combine to keep long-term interest rates low.

The length and depth of the dip, if one comes, is a guess, though.

``It's hard to know when you are in the midst of a revolution like this one,'' he said of the current market.

Greg McBride, a senior financial analyst at Bankrate.com, said that even though the yield on the T-bill sank under 4 percent there is no guarantee it will go much lower for much longer.

That said, long-term rates have not moved up despite nudging by Federal Reserve Chairman Alan Greenspan.

``The Fed's warning is falling on deaf ears,'' McBride said.

And now the 30-year fixed rate is within sight of the rate on hybrid adjustable loans.

And that does provide a refinance opportunity.

``At the same time fixed rates are falling you're still looking at a steady increase in short-term rates and that impacts all the borrowers who took adjustable and interest-only loans.''

So if you're a relatively new homeowner it might be worth it to start watching rates.

Especially since Greenspan is scheduled to address the rate issue again next week. And this time someone might be listening.

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com