Home buyers can expect a modest increase in loans rates later this year and into 2005. But most observers believe they will be better off for it.

While there is some concern that higher mortgage costs will nullify the ownership aspirations of lower-income buyers, economists participating in the National Association of Home Builders' Spring Construction Forecast Conference agreed the factors behind rising rates -- job and income growth -- bode well for the housing sector.

"Housing is in a very, very solid position," said NAHB's chief economist, David Seiders, who presided over the day-long gathering at the association's headquarters last week. "Certainly better than the one we're on. Depending on low mortgage rates alone is tenuous, at best."

Seiders and other analysts agreed that a full-fledged economic recovery is finally underway, and that decent job and income growth should follow. They also expect the negative impact of higher rates on housing demand to be largely offset by what the NAHB economist called "the ongoing critical recovery in employment and personal income."

The builders' group now expects the Federal Reserve Board to start ratcheting up short-term rates by the end of the summer instead of after the November elections, as it had previously predicted.

Seiders believes the Fed will take the all-important Federal Funds Rate from the current record low 1 percent to 1.5 percent by year's end. And as a result, he has long-term fixed-rate mortgages rising to 6.2 percent by the close of 2004 and 7 percent by the end of 2005.

But he said higher rates won't put the kibosh on housing demand.

Indeed, the economist thinks the initial impact of higher rates could be positive if buyers who have been taking a wait-and-see attitude decide to take the plunge before rates go any higher.

In the long term, though, the NAHB economist conceded that higher rates are "bound to exert some drag on demand over time." But not by much.

"There will be a little bit of a sag, but the numbers will still be excellent," he said.

According to NAHB's latest forecast, single-family starts will decline only slightly this year and next -- from 1.5 million units in 2003 to 1.49 million in 2004 and 1.42 million in 2005. And bolstered by a strong condominium market, multi-family starts are expected to remain on the same pace as last year's 348,000 starts before dipping to 322,000 units next year.

James Glassman, managing director and senior economist at JPMorgan Chase & Co., New York, is "not worried at all" about housing.

"The economy going ahead is much better for housing," he told the conference. "There will be a whole lot more income to support the rise in rates. Housing had essentially a free-pass with record low rates, but I don't think (the ride is) over. Housing always does better in an expansion."

Glassman did not offer any specific mortgage rate projections. But he did suggest that the Fed's ability to control inflation will keep rates from getting out of hand.

"We no longer have to be obsessed with inflation," the Wall Street economist said. "Price stability is historic; it's a remarkable achievement by the Fed, and it's one more reason to be optimistic about housing. Price stability is worth its weight in gold for housing."

A third economist, David Wyss of Standard & Poors, said higher rates will have more of an impact on the move-up market than on rookie buyers because, while first-timers still have to get on the ownership ladder's first rung, those who are already owners don't have to move.

But across town at the Mortgage Bankers Association's National Secondary Mortgage Conference, Raymond Christman, president and chief executive officer of the Federal Home Loan Bank of Atlanta, said lower income borrowers will either have to remove themselves from contention or set their sites on lower-cost housing alternatives.

"What has me worried in basic affordability," he said. "If interest rates grow by 200-250 basis points, it will add 30 percent annually to the principal and interest payments on a $200,000 house."

On the same panel, however, Paul Peterson of Freddie Mac, noting that mortgage rates have been in the 8-9 percent range on average since 1971, said there's "still plenty of room for a significant increase in interest rates without a huge impact" on the market.

Ronald Rosenfeld, president of Ginnie Mae, also discounted the effect of higher rates, saying that housing is not in jeopardy because home ownership is "a huge part of the nation's social fabric" and "something practically all families strive for."

And back at the NAHB conference, economist Seiders stressed that the ability to switch to lower-priced adjustable-rate mortgages will help blunt the impact of higher long-term rates on every market segment, from first-timers to folks who are well up the housing ladder.