Most of the key economic indicators for real estate continue to be at least moderately positive -- home sales are up, prices are stabilizing or up, unsold inventories are down, and even new unemployment filings are down slightly.

But there's a storm cloud looming on the near horizon that everybody needs to keep an eye on: Mortgage rates have been moving up -- fast. Bond market investors are spooked by the federal government's massive borrowings to pay for the stimulus and the deficit.

They're worried that serious inflation may be coming and they're demanding higher rates on the ten year Treasury bonds that are the benchmark used to price mortgages.

But let's focus first on the positive side of the ledger: A key housing price index released last week suggests that the long-awaited turnaround may be underway. The Integrated Asset Services Index - which is based on data from 15,000 local market segments around the U.S. -- went flat on a national basis in May for the first time in a year.

Prices in the Northeast were up by six tenths of a percent for the month. In the Midwest they rose by one tenth of a percent, they were down slightly in the South, and flat in the Western region.

Now that might not impress you, but David McCarthy, CEO of the research and services firm, said flat means bottoming out - and in his words, "that's encouraging (for housing) for the long term."

In some California markets that had experienced severe hits during the darkest days of the bust, the price changes for the month were larger than the national numbers.

San Bernadino prices gained 1.1 percent between April and May. Monterey saw a 3.7 percent increase and Sacramento homes were up four tenths of a percent.

Meanwhile, ZIP Realty's monthly national survey of unsold housing inventories found the number of MLS listings in 28 major markets down by 4 percent in May, and by 24 percent from year-earlier levels.

Now on to the sobering news on mortgage rates: No one can predict precisely how high rates are headed, but in the past two weeks they've jumped by more than a percentage point. The Mortgage Bankers Association reports that last week alone average 30-year fixed rate jumped to 5.6 percent from five and a quarter the week before.

Some analysts project rates to hit and surpass the 6 percent mark if current trends continue.

Bottom line: Given that house prices have turned around, and interest costs are soaring, value-conscious shoppers need to get their contracts and loan applications in -- quick!

Published: June 16, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.