No one likes inflation, and the Federal Reserve’s mission to fight this economic woe is an excellent concept for a government agency. Yet each time the Fed acts, or fails to act, the U.S. economy in general and the gigantic real estate sector in particular are at risk. That’s why the Fed’s hand on the lever of the U.S. economy should be moved at all times with delicacy and caution, and right now, not at all.

The Fed has already increased its key short-term benchmark interest rate 17 times since mid-2004.

No one likes inflation, and the Federal Reserve’s mission to fight this economic woe is an excellent concept for a government agency. Yet each time the Fed acts, or fails to act, the U.S. economy in general and the gigantic real estate sector in particular are at risk. That’s why the Fed’s hand on the lever of the U.S. economy should be moved at all times with delicacy and caution, and right now, not at all.

The Fed has already increased its key short-term benchmark interest rate 17 times since mid-2004. That’s a lot of tightening, and the full effects of the higher costs of borrowing are still working their way through the economy. For now, it’s enough, perhaps even more than enough.

The risks of too-high interest rates naturally are greatest for the economy’s two most interest rate-sensitive sectors: real estate and automobiles, both of which depend heavily on buyer financing costs. Higher interest rates by definition mean buyers will pay more over the lifetime of the financing for a house or car even if the price of that house or car is unchanged. That’s why interest rates naturally are an important factor in any buyer’s decision to purchase a home.

Interest rates on mortgages haven’t risen as rapidly as the Fed-managed short-term rate has, nor have they stuck at the rock-bottom lows of recent years. The average commitment rate on a 30-year fixed-rate mortgage hit 6.86 percent in late June, according to Freddie Mac’s weekly survey data. That’s still very attractive by historical standards. Thirty-year fixed-rate mortgages couldn’t be had for less than 7 percent at any time during the 26 years from 1971, when Freddie Mac started tracking this statistic, to 1997, when mortgage interest rates began to drop back to lower levels, and surely no one (other than passbook-saving retirees) would welcome a return to the interest-rate climate of 1981-82, when fixed rates on 30-year mortgages soared as high as 17 percent.

Yet those cycles are now ancient history, and today’s home buyers have become sticker-shocked by current mortgage rates in comparison with the 5 percent-plus mortgages that could be had in recent years. That’s particularly true now that house prices are so much higher.

Interest rates on adjustable-rate mortgages, which enable borrowers to stretch their purchasing power, also are now higher than they have been in recent years and that likewise bodes ill for homeowners and housing markets. ARMs and other creative financing instruments are a risky business for borrowers and the hurt for those who can’t afford higher monthly mortgage payments could be considerable if the Fed pushes rates higher than they are today.

The other real estate-related risks of too-high interest rates are many and legendary. They include slower or negative home price appreciation, fewer sales of new-built and existing homes, a crash in the volume of mortgage originations and refinancing, higher rates of foreclosure, a softening of new home construction activity, delays or cancellations of home remodeling projects, and an overall shrinkage in real estate investment capital.

Signs of these risks have surfaced in some of the nation’s housing markets. Home sales, seasonally adjusted and annualized, in California in May totaled some 488,000, a decline of 21 percent compared with May 2005. New foreclosures nationally in May topped 92,700, an increase of 28 percent compared with the number recorded in the prior-year period. And a recent UBS/Gallup survey of some 800 investors found more than 60 percent of them expected worsened conditions in the U.S. housing markets in the next year.

Ben Bernanke, the new man at the helm of the Federal Reserve, has taken few missteps so far and appears to be a fast learner, which is exactly what’s needed. But what’s also needed are a willingness to learn from the historical record, a respect for the huge importance of real estate in the economy and the patience to measure the results of interest rate increases to-date before any decision is made to raise rates further, hold steady or even back off the rate increases of the last two years. The Fed’s hint that it may now pause should be welcome news for homeowners and people whose livelihoods depend on healthy real estate, mortgage and homeownership markets.

The Fed’s eye is rightly on inflation, and Bernanke and crew have been right to combat the threat of inflation aggressively so far. But now that rates are higher and now that real estate is a much larger sector of the economy than once was, the risk of economic pain is that much greater if the Fed over-reacts to inflationary pressures. Would smashed housing markets be preferable to higher prices?

Marcie Geffner is a freelance reporter in Los Angeles.

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