The 30-year fixed-rate mortgage averaged a record 5.67% this week, according to Freddie Mac’s weekly survey. That’s a substantial bump down from the 5.79% last week and especially from the 6.87% the same time last year. Nationally, the 30-year was highest in the North Central states at 5.76% and lowest in the West at 5.60%.

The 15-year this week broke its record as well — 5.01%, down from 5.14% last week and 6.37% last year. The one-year Treasury-indexed adjustable-rate mortgage (ARM) averaged 3.76% this week, down from 3.83% last week. Last year the ARM averaged 5.07%.

“The political and economic uncertainty of war in Iraq is wearing on the confidence of consumers and restraining business expansion,” said Freddie’s chief economist Frank Nothaft. “That, in turn, translates into a weaker economy which places downward pressure on interest and mortgage rates.”

Freddie released a study this week that said house price growth is slowing to more normal levels.

“When coupled with falling mortgage rates, this means housing becomes more affordable to a larger segment of society, so we expect 2003 will be another exceptional year for housing,” Nothaft said.

The falling rates helped plump mortgage applications last week. According to the Mortgage Bankers Association of America’s (MBA) index, which reports a week behind Freddie’s survey, applications increased 10.8% to 1265.4. Last year at this time the index was less than half of that.

Refinancing activity made up 74.7% of last week’s applications, decreasing a bit from 75.3% the previous week. Refis only represented a little more than half of applications last year, according to the index.

“Investors were nervous last week due to the situation with Iraq and mixed economic signals,” MBA economist Phil Colling said. “This sent the yield on Treasury notes down and dropped mortgage interest rates to another record low. The rate drops over the last few weeks have obviously driven up refinancings.”

Nearly half of mortgage experts polled in Bankrate.com’s weekly survey said they’re pretty confident that rates will hover over the next five weeks. Forty-six percent said rates will stay unchanged, within 2 basis points; 39% said rates will drop even further; and 15% said they’ll rise.

“Still no change in sight for mortgage rates. I think we will hang out in these ranges for a while yet,” said Jason P. Flurry, CFP of Planmark Capital management in Alpharetta, Ga., to Bankrate.com. “There are just too many unknowns out there for much to happen right now.”

The 10-year Treasury note yield was down 0.02% to 3.63% during morning trading, with the price up $0.15625 at 102.