After Record Lows, Mortgage Rates Headed Up in 2010

For home buyers and sellers, the higher rates might take a toll on the struggling housing market even as some areas of the country see a slight recovery.

"Any time there are higher rates, that prices out certain buyers," says Yun. "The pool will shrink somewhat. The market's benefited from the Obama first-time buyer tax credit and the Fed purchases. If those go away, and rates rise, it might hurt certain people."

And there's refinancing. "Higher rates will slow things down when it comes to refinancing loans," says Bob Walters, vice president and chief economist at Quicken Loans. "We've seen refinancing up with the lower rates but there will be a drop off."

Whether 2010 turns into a buyers' or sellers' market depends on your point of view. For sellers seeing home values and prices decline, low rates keep buyers interested. But increasing rates pose a problem, says SDSU's Goldman.

"Affordability has been helped by falling home prices," Goldman says. "But high rates can put a damper on that if buyers sense their monthly payments are headed higher."

But higher rates could also be a motivator, says Tim Dwyer, president and CEO of Entitle Direct Group and Founder of EntitleDirect.com, a home title insurance firm. "There is a silver lining if all things are equal," Dwyer says. "The increase in rates and bottoming of house prices could result in an increase in housing activity. Once folks begin to feel interest rates rise, they are a motivator for fence-sitters to jump in and buy now rather than later at higher rates."

Even as rates head north, the jobless numbers pose a greater concern for the housing market, analysts say.

"The problem is the foreclosures," says Greg McBride, senior financial analyst for Bankrate.com. "People losing their jobs are causing most of the home foreclosures now. They (foreclosures) are undercutting home prices by 20 percent. Something needs to be done and the problem (the unemployed) is not going away any time soon."

Most experts feel it won't be higher interest rates that put the brakes on a housing recovery. Existing home sales for November reached a near three-year increase, and barring any kind of economic downturn in 2010, the trend should continue.

"I don't see housing damaged if rates go up," says NAR's Yun. "I think the Fed will play it by ear, and if housing needs help, I think they will extend the buying program of mortgage-backed securities. And the same is true for the housing tax credit. It could get extended as well."

Whether the government spends more to help housing or steps out of the way next spring, home buyers need to think beyond increasing rates, McBride says. "If you can't afford a house at 6 percent, than you can't afford the house. Higher interest rates won't price most people out of the market. It makes it difficult, but rates even at 6 percent are affordable."

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