Will rising mortgage rates pop the real-estate bubble?

MARIETTA, Ga. — A four-bedroom ranch home with a finished basement and swimming pool overlooking a golf course fairway in one of Georgia's top school districts should be a steal for $309,000.

Not for owner Sherry Hersh, who blames rising interest rates for keeping her home on the market for nearly a year.

"It's made it more difficult to sell it," says Hersh, who runs a small promotional products company out of her suburban Atlanta home. "It's made me more conscious of what I will get for the house in order to buy a new house."

Real-estate and mortgage experts from Los Angeles to Chicago to Atlanta say Hersh's case could become more common in the wake of the Federal Reserve's latest decision to increase the overnight bank lending rate for the seventh time since June. Because that helped push up other interest rates — including the yield on the 10-year Treasury note, which tends to influence mortgage rates — they say it could take longer for people to sell their homes at the prices they want.

So far, though, signs of a slowing of the housing juggernaut are mostly anecdotal.

New-home sales soared by 9.4 percent in February, the government reported last month. And while sales of previously owned homes dipped 0.4 percent, the results still were better than analysts were forecasting.

For existing homes, the median price was $191,000 in February, an 11 percent increase from the same month a year ago. And stories of bidding wars pushing sales prices far above their asking price continue to circulate in many markets, including New York City and the suburbs of Washington, D.C.

Even so, economists are forecasting that home sales and ever-escalating prices are likely to cool if mortgage rates continue to head higher this year.

"What's happening with rates is hurting the seller worse than it is the buyer, and home prices will flatten out if not go a little lower," said Bob Long, president of the Georgia Association of Mortgage Brokers.

In California, some industry observers are projecting a gradual slowdown in prices as borrowing costs rise and affordability becomes an even more acute issue.

"The picture for California has been great, but I think it has started changing," said Bruce Norris, president of The Norris Group, a real-estate investment company. "There's certainly going to be upcoming weakness in California because we've just about gotten to the point where we've priced our typical buyer out of his ability to make the monthly payment."

High-end homes in parts of Chicago, those priced at $1 million and up, aren't selling as fast as they did in recent months, said Barbara Frankel-Abrams, vice president of sales at Jameson Realty Group.

"Maybe carrying a quarter percent increase [in interest] is more formidable at that price," she said.

Sin City's housing market has been hot during the period of low interest rates over the past several years. But some mortgage brokers in Las Vegas believe that rising rates could start to put the brakes on their housing boom, making it more difficult for sellers. "People have decided they're not going to pay the astronomical prices for homes," said Las Vegas mortgage agent Connie Hooten.

Not everyone is predicting that ballooning home sale prices will burst with rising interest rates.

In Phoenix, the market has been so hot, it's going to take a while for it to cool down, said Jay Butler, director of the Arizona Real Estate Center at Arizona State University.

And in the Boston area, Maggie Tomkiewicz, president of the Massachusetts Association of Realtors, said that if anything, rising rates may lead to more home sales in the short-term, as buyers anticipating further rate increases try to jump in the market while rates are still reasonable.

"Buyers say, 'Let's get out there in the market and get it done,' " Tomkiewicz said.

That sentiment has been lost on Sherry Hersh and her husband. They lowered the price of their Marietta, Ga., home by $30,000 and as of late March, they still hadn't gotten a good offer. The home has been appraised at $365,000.

The average sales price for a single-family detached home in metro Atlanta fell to $234,876 in January from $238,369 in December, while the average number of days a home stayed on the market before selling increased from 81 to 84 days.

"We've had some offers, but they've been very, very low and by builders who want to basically knock our house down and build a $500,000 home on our property," Sherry Hersh said.