Mortgage rates were supposed to be rising by now, helping to gradually cool the nation's red-hot housing market. The Federal Reserve has...

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Mortgage rates were supposed to be rising by now, helping to gradually cool the nation’s red-hot housing market.

The Federal Reserve has been raising short-term interest rates steadily for nearly a year. The economy is growing at a healthy pace. Energy costs are up. If history were a guide, long-term rates would be rising, too.

But they are not.

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Even Federal Reserve Chairman Alan Greenspan has called this a “conundrum.”

Defying predictions, mortgage rates are lower than they were a year ago and falling. That’s a large part of why home sales and prices are at record highs and are fanning worries of a real-estate investment bubble.

Mortgage giant Freddie Mac said yesterday its weekly nationwide survey showed rates on 30-year, fixed-rate mortgages averaged 5.62 percent, down from 5.65 percent last week, The 30-year rate is at the lowest level since it dipped to 5.57 percent Feb. 10, the low-point so far this year.

“The housing market is going to be robust if rates stay where they are,” said Freddie Mac’s chief economist, Frank Nothaft. “But it’s hard for me to fathom why they would stay this low for long.”

While homebuyers cheer the bargain borrowing costs, some economists are puzzled and concerned.

If mortgage rates keep sliding, they will pump up any bubble. But if rates snap up suddenly, a bubble could pop, with both prices and investment dropping sharply, hurting many borrowers and investors.

Global financial markets, not any government body, determine long-term interest rates through bond trading each day.

High demand for bonds pushes up their price and drives down their yield — their effective interest rate after factoring in purchase price.

A combination of factors keeps driving demand and pushing rates down.

The forces have “much more to do with speculation, hedging and politics than … with actual investment merit,” wrote Peter Schiff, president of Euro Pacific Capital, a Newport Beach, Calif., investment firm, in a recent analysis. “Once these forces reverse, expect bond prices to plunge and interest rates to soar.”

Mortgage rates are largely determined by the yield on the 10-year Treasury note. Last June, when the Fed’s benchmark short-term rate was 1 percent, the 10-year yield was 4.69 percent and the average 30-year mortgage rate was 6.25 percent.

Since then, Fed officials have raised their benchmark federal-funds rate — charged on overnight loans between banks — to 3 percent and indicated they plan to move it higher to keep inflation in check.

But the 10-year yield has fallen below 4 percent, to 3.89 percent earlier this week — the lowest level since March 2004.

Some analysts predict it will keep sliding. Merrill Lynch’s interest-rate committee last week lowered its yield forecasts, projecting the 10-year Treasury to yield 3.8 percent by year’s end.

Morgan Stanley’s chief economist, Stephen Roach, on Tuesday predicted the yield could drop to 3.5 percent in the next year. That represented a turnabout for someone who had insisted for months that interest rates would eventually rise as part of a correction of the nation’s huge trade deficit.

Economists are studying the “conundrum” intensely, finding partial explanations.

Some point to short-term issues. For example, one factor that helped push down yields this week was a Fed official who implied the central bank would stop raising its benchmark rate after its meeting this month.

Richard Fisher, president of the Federal Reserve Bank of Dallas, said during an appearance on cable network CNBC: “We’re clearly in the eighth inning of a tightening cycle. … We have the ninth inning coming up the end of June,” according to a partial transcript by Bloomberg News.

Fed officials are likely to raise the funds rate to 3.25 percent later this month. Wall Street analysts predict the Fed will keep going, lifting the rate to at least 3.75 percent in coming months.

If the Fed pauses after June, other rates may stall as well.

Fisher’s comments touched off a trading frenzy, increasing the already voracious hunger for long-term Treasuries.

Oil-producing countries, for example, have reaped a profit windfall over the past two years as crude prices rose from around $35 a barrel to above $57 a barrel in early April.

Oil trading is denominated in dollars, so many producers have parked their profits for the time being in U.S. Treasuries.

The recent downgrading of debt issued by General Motors and Ford has prompted some investors to move money from corporate bonds to Treasuries, considered extremely safe because a U.S. government default is so unlikely.

Meanwhile, many hedge funds and traders have bet wrong on a variety of investments — expecting, for example, that GM debt would rise in value or that long-term interest rates would rise. The resulting turmoil in the markets has caused some investors to seek the “safe haven” of Treasuries, analysts said.

The fall in mortgage rates has also caused portfolio problems for some institutions that own mortgage-backed securities.

As a result, they have had to buy more long-term securities, causing rates to fall further, said Michael Decker, senior vice president of research and public policy for the Bond Market Association.

Combined with these short-term factors are long-term economic conditions.

Yields are relatively low throughout the industrial world, in large part because the Fed and other central banks cut their short-term rates in response to the 2001 recession. Rates have been held relatively low since then.

Inflation has also been extremely low.

By raising short-term rates by 2 percentage points in the past year, the Fed has assured most investors that inflation is under control, some analysts said.

Low yields on the 10-year Treasury “reflect the general view that growth in prices will remain benign over the coming decade,” Decker said.

Much of the demand comes from a global glut of savings relative to investment opportunities, according to Fed board member Ben Bernanke. Asian central banks that have trade surpluses with the United States and have pegged their currencies to the dollar, for example, have vast supplies of dollars that they invest in U.S. assets — including Treasury securities of different durations.

Meanwhile, pension funds and insurers from all over the world have large amounts of retirement savings to invest on behalf of aging populations. Many such investors want to avoid stock market and real-estate risks.

In some countries, they have recently come under regulatory pressure to match their long-term liabilities with long-term investments — prompting a shift to bonds with durations of 10 years or more.

Weekly mortgage-rate information provided by The Associated Press

Freddie Mac chief economist