Interest rates might be on the rise, but that’s no reason to panic – or to believe that a home is further away in your future. According to the National Association of REALTORS® (NAR), rising interest rates are a sign of healthy economic growth and won’t dampen the nation’s housing market – which is still very strong. In fact, David Lereah, NAR’s chief economist, says the cause of higher interest rates makes all the difference.

“The reason interest rates are higher is that we are in a growing economy rather than dealing with inflationary pressures,” he says. “That’s good news because corporate profits are up 40% from two years ago, so companies are spending, and jobs are being created at a strong pace. And in the housing markets, this is largely neutralizing the effects of modestly higher interest rates.”

Lereah predicts that mortgage interest rates will stay favorable in historic terms for the foreseeable future. He is concerned, however, for lower-income homebuyers, who will likely be most affected by a rise in financing costs.

“Our hope is that the improving job market will provide the means to also afford decent housing at the lower rungs of the housing ladder,” he says.

Housing by the numbers
Short-term interest rates are rising slowly, and long-term rates rose before that in anticipation of the recent Federal Reserve Board move to raise rates. The 30-year fixed-rate mortgage was 6.21% the last week in June, after reaching the 6.3-percent range in May, and is expected to rise to 6.7% by the fourth quarter.

Lereah forecasts existing-home sales to hit a record 6.31 million this year, up 3.4% from 2003. New-home sales are expected to rise 6.4% to 1.16 million in 2004, also a record. Housing starts should grow by 2.6% to 1.90 million, the highest level since the impact of the baby boom generation in 1978.

The median existing-home price should rise 6.7% this year to $181,500; the median new-home price is seen at $209,600, up 7.9% from 2003.

The good news is that incomes are increasing: Inflation-adjusted disposable personal income is expected to grow by 3.8% this year, and the consumer confidence index is also expected to continue to rise.