If you like good news it would be hard to outdo the release issued on Friday by the National Association of Home Builders.

"Housing starts increased to a seasonably adjusted annual rate of 2.007 million units in March, the Commerce Department reported today. The pace was 6.4 percent above February's upwardly revised rate of 1.887 million and 15.2 percent above the March 2003 pace."

Better than 15 percent in a year?

Let's have some perspective. Last year, 2003, was astonishingly good for both the national economy and the real estate industry.

• Existing home sales reached 6.1 million units, a record and up 9.6 percent from the year before, according to the National Association of Realtors (NAR).

• A typical existing-home cost $173,200 in December 2003, according to NAR. That was up 6.7 percent from a year earlier.

• "Total new single-family home sales for 2003 reached 1.085 million, up 11.5 percent from the previous annual record of 973,000 in 2002," according to the National Association of Home Builders.

Is it reasonable for real estate sales and prices to keep rising, now that the economy seems to be in a rebound mood?

The answer is not especially clear. A growing economy is likely to be associated with rising interest rates, and interest rates have been the engine behind much real estate activity in recent years.

In the past few weeks, Freddie Mac says rates climbed from 5.52 percent to 5.89 percent, both with .6 points. The result, according to the Mortgage Bankers Association, is that loan applications dropped 22 percent in a week.

It's obvious that 5.89 percent is higher than 5.52 percent, but is this difference really enough to reduce mortgage applications by a fifth? This hardly seems warranted.

If you look at mortgage rates during the past 20 years or so it's tough to ignore the overwhelming pattern: Rates have more-or-less trended down over time, reason enough to finance with an adjustable-rate mortgage (ARM).

In 1984, for example, the slow-moving and consumer-friendly 11th District Cost of Funds rate reached 11.039 percent in August of that year versus the current 1.841. If you take the index, add a 2.5 percent margin, it means a borrower 20 years ago was paying 13.539 percent versus 4.341 percent today.

Given today's mortgage rates, it's hard to imagine that eight percent was once a bargain, seven percent was the find of a lifetime or that six percent was even feasible.

It may be that first-time and middle-age buyers and borrowers simply have no frame of reference other than the ever-falling rates seen in the past few years. To such folks, the "steep" rate rise seen earlier this month must seem somewhat scary, or at least contrary to the usual pattern.

But rates must eventually rise at some point. Will the real estate marketplace simply shut down when interest levels "zoom" to 6.5 percent or, shudder, 7 percent?

The answer is "no" and here's why: Even when rates have been ridiculously high homes have still sold -- and prices have risen.

In 1984, for example, typical home prices rose 3 percent and 2,829,000 existing units were sold according to the National Association of Realtors. Interest rates? In July and August of that year the prime rate hit 13 percent.

I suspect that when interest rates rise again it will be an evolutionary process rather than a quick jump of one or two percent. The result will be rate shock for those who do not remember the past -- or that real estate is a long-term investment.

There's little doubt that low interest rates inflate real estate sales. But beyond mortgage levels there are other reasons to buy homes -- the desire to live indoors, the potential for appreciation and the possibility of refinancing at low and better rates in the future.

Should rates begin to rise again watch successful investors in your community. Odds are that if the local population is growing, savvy investors will be in the marketplace -- buying. After all, it's tough to find homes today for $72,400 -- and that was a typical selling price in 1984.

For more articles by Peter G. Miller, please press here.

Published: April 20, 2004

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .