If mortgages rates are headed up — and not everyone agrees that they are — that could create a drag on housing markets, warns Lawrence Yun, chief economist with the National Association of Realtors.

Rates on 30-year fixed-rate mortgage have been below 4 percent for 15 weeks, averaging 3.92 percent with an average 0.8 point for the week ending March 15, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey.

If mortgages rates are headed up — and not everyone agrees that they are — that could create a drag on housing markets, warns Lawrence Yun, chief economist with the National Association of Realtors.

Rates on 30-year fixed-rate mortgage have been below 4 percent for 15 weeks, averaging 3.92 percent with an average 0.8 point for the week ending March 15, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey.

Mortgage rates are largely determined by investor demand for mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. If the economy picks up, MBS may fall out of favor as investors shift money out of conservative bets like bonds and into higher-risk — and higher reward — investments like stocks. That would push bond yields and mortgage rates up.

In a March 12 forecast, economists at Fannie Mae said they expect 30-year fixed-rate loans to climb slightly this year, averaging 4.1 percent during the second half of 2012, and continue on a gentle upward slope to an average of 4.3 percent in 2013.

Yun predicts rates on 30-year fixed-rate mortgages "will soon be in the range of 4.3 to 4.6 percent."

In the short run, Yun says that fears that rates will rise could spur sales by getting buyers off the fence. In the long run, if rate increases actually materialize, that would reduce homebuyers’ purchasing power and shrink the pool of eligible homebuyers, Yun said in a blog post.

If mortgage rates rise to around 4.5 percent in coming weeks, Yun expects that would dent home sales by 3 percent. If the 30-year fixed mortgage rate rises to 5 percent, "then the impact is closer to 6 percent," he said.

The impact of any rise in mortgage rates could be offset by job gains or a loosening of mortgage underwriting standards. "Still, it is worth keeping in mind that rising rates will put some drag on the broader housing market recovery," Yun said.

Fannie Mae economists, in commentary accompanying their March housing forecast, said they "continue to expect that low mortgage rates will help support housing affordability, with the yield on 30-year fixed-rate mortgages rising gradually to just slightly more than 4 percent by the end of 2012."

Although housing indicators have improved — existing-home sales have picked up by about 27 percent at an annualized rate during the last six months — there are reasons to be cautious, Fannie Mae economists said.

A lack of sustained demand for purchase mortgages suggests "sluggish organic demand" for homes that aren’t in distress.

NAR surveys show that a rising share of contracts are failing to close in recent months, in some cases because lending standards remain tight and homebuyers don’t qualify for loans, but also because appraisals are coming in below agreed-upon sales prices, forcing sellers to lower their price or buyers to make larger down payments.

"Investors and other all-cash buyers continue to play a sizable role in supporting sales in battered housing markets," Fannie Mae economists concluded.

A recent analysis of price and sales trends in the nation’s 25 largest metros by real estate data and analytics firm Radar Logic Inc. suggested that recent growth in home sales appears to be driven by the willingness of sellers to lower their prices, rather than a broad-based increase in demand and buyer confidence.

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