Rising interest rates didn’t keep Sarah Oliver and her husband from buying a $175,500 house close to Lake Allatoona.

But that was in late November, when they could still got a mortgage loan with an interest just under 4 percent.

Now rates are well above 4 percent, and expected to keep climbing in 2017.

“I wouldn’t have wanted to do more than 4 percent – no, that’s not true, there are so many variables,” Oliver said. “How much you would pay really depends on how much you want something.”

Rising interest rates bring a new wrinkle this year to the housing market, which has benefited from a long run of historically rock-bottom borrowing costs — though tempered by tougher lending standards since the recession.

The effects could be double-edged. Higher interest rates add to the monthly cost of a home, crimping the buying power of a potential purchaser. On the other hand they may also prod some shoppers to get off the sidelines, spurring sales.

In the weeks after the election, mortgage applications rose. Then that surge reversed — at least temporarily — as applications dropped 12 percent in the final two weeks of December.

Two main factors have nudged rates higher this winter. The Federal Reserve’s move to raise its benchmark borrowing rate, with further bumps expected this year, provides upward pressure on rates for consumer loans including mortgages.

Donald Trump’s election triumph also encouraged investors to expect higher government deficits, which would likely mean higher interest rates.

Paige Thornton, associate broker at RE/MAX in Alpharetta, said the direction of rates was no surprise.

“I think regardless of who got to be president, we would be seeing increased interest rates,” she said. “The rates just can’t stay as low as they’ve been. Everybody knew that interest rates were going to go up.”

And that means that the homebuyer’s calculation is changing, she said. “If rates go up, you can afford less house.”

When rates rise dramatically, experts fear they will choke off demand and suffocate the market. But a modest increase can actually have the opposite effect – persuading many fence-sitters to get into the market before they are priced out of it.

Rates on the rise

The average 30-year, fixed-rate mortgage the last week in October was 3.47 percent, according to the St. Louis Federal Reserve. By Dec. 22, the average was 4.30 percent.

It was 4.32 percent by Wednesday.

The first impact is positive, said Arlene McCoy, an agent with RE/MAX in Marietta.

“December is often considered a slower month but not always and our December has been quite busy so far,” she said. “People realize that they have to do something.”

Atlanta mortgage rates have run slightly below the national average, though they have risen in parallel.

But even with the increase, current rates are below historical averages and dramatically lower than the rate spikes of the late 1970s, McCoy said.

“My parents bought at 17 or 18 percent. And the rate on my first home in the mid-1990s was 6.5 to 7 percent.”

The crest of rates, according to the St. Louis Federal Reserve, was in the fall of 1981, when the national average for a 30-year, fixed-rate mortgage was 18.63 percent. In contrast, that average bottomed out at 3.31 percent in 2012, according to the Fed.

“Look, 6 percent used to be common,” McCoy said. “We have just been enjoying the gravy. I think, if you are below 6 percent, you are still doing okay.”

The other ‘I’ word

The main problem with the Atlanta market, experts say, has little to do with interest rates. It’s another ‘I’ word: Inventory.

That is, in many areas and certain price parameters, there just aren’t enough homes for sale. The result is an imbalance between buyers and sellers, which gives the upper-hand to anyone who does have a reasonably priced, well-maintained home for sale.

“So the rate is a factor, but it is not the driving factor,” McCoy said. “That is the lack of inventory.”

That tends to push prices higher. And that, in turn, tends to make homes less affordable – especially for first-time buyers.

And while higher interest rates are not the reason for the change in affordability, they are not likely to make things better for cash-strapped buyers.

Rising rates could be a bigger factor as the market heads toward its most vibrant period of listings and sales: the spring.

How much higher are rates going to go? Will they rise far enough to chill sales?

Real estate agents typically are upbeat people. Thornton, for one, sees the spring as a period of very modest increases in rates and very active buying and selling.

“I think it will be substantially better than last spring,” she said. I think we are going to rock and roll.”

Fairly bright outlook

Mekael Teshome, economist at the PNC Financial Services Group, agreed the 2017 outlook for the Atlanta economy, as well as the housing market – is fairly bright.

Rates are going to go up, but the economy can handle it so long as rise is modest, he said. “The way that I view it, the rise in interest rates that we are experiencing is not detrimental to the economy.”

Mortgage rates will not get above 5 percent for any length of time in the next year, Teshome predicted.

“Anything under 5 percent, I am not too worried about. If they got over 5 percent for very long, that would throw some sand into the gears.”

One potential homebuyer, Reginald Jones, 50, said he’s well aware of the rate question.

Jones, who runs a tech consulting company, is looking in Smyrna and Vinings, but is also intrigued by some of the more “up-and coming neighborhoods” in the city of Atlanta. While he is scoping out single-family homes, higher rates and higher prices could change the equation.

“It could definitely change the way I look and it would change where I look,” he said. “It might move me from one place to another. It might move me from a single-family house to a townhome.”


Average mortgage rate, last 10 Decembers

30 year fixed

2016: 4.20 percent

2015: 3.96 percent

2014: 3.86 percent

2013: 4.46 percent

2012: 3.35 percent

2011: 3.96 percent

2010: 4.71 percent

2009: 4.93 percent

2008: 5.29 percent

2007: 6.10 percent

2006: 6.14 percent

Source: Freddie Mac

HOME SALES GAIN GROUND

Experts say rising mortgage rates could be double-edged. Here is the sales volume trendline since 2011 for metro Atlanta. (Figures are for the previous 12 months):

Dec. 2011 – 40,890

Dec. 2012 – 42,331

Dec. 2013 – 45,550

Dec. 2014 – 46,127

Dec. 2015 – 51,837

Dec. 2016 – 56,444

Source: Atlanta Realtors Association