News accounts of every upward twitch in interest rates, coupled with breathless mortgage-broker ads, may lead people wanting to buy homes to think it's now or never.

But the sky isn't falling.

After a period of low interest rates that fueled four years of home-sales records, economists expect rates for the benchmark 30-year, fixed-rate home mortgage loan to inch up to 7 percent by the end of next year, from about 6 percent currently.

Over the past 32 years, rates have soared as high as 18.45 percent and plunged as low as 5.23 percent, according to national monthly averages compiled by mortgage funder Freddie Mac. During those decades, homes continued to be bought and sold, and the median price rose steadily.

So how high do rates have to go before they put the brakes on home sales?

Some industry veterans give estimates ranging from 7 to 10 percent. But they stress that other market forces are equally important: the job market, consumer confidence, the desire to buy a home as an investment, as well as ongoing migration into the Twin Cities area.

Industry experts note that people don't buy houses just because of low interest rates.

"They buy houses because they want to own a home" and are confident about their ability to pay for it, said Mark Allen, CEO of the Minneapolis Area Association of Realtors. He tells association members that moderately rising interest rates are a byproduct of a healthy, growing economy, "including an improving job market that is going to result in a more vibrant real estate market."

Still, each rate increase knocks some first-time buyers out of the market and other buyers must shrink their dreams. The question is, how many buyers and how much shrinkage?

"It's probably going to have to hit 8 or 9 percent, and that's not high in my estimation," said Counselor Realty agent Ralph (Mickey) Rooney, who's sold houses for 32 years. He recalled selling a $50,000 house to a buyer with a 14 percent Veterans Administration loan in 1981. At that time, rates couldn't be "locked in," and at closing a few weeks later, the rate was 16 percent. "The buyer backed out," he said. "I couldn't blame him."

Renters aspiring to buy will drop out at 9 percent, he said, but he doesn't think the market will founder. "I remember when I thought it'd never get below 10 percent."

Wade Abed, president of the Minnesota Association of Mortgage Brokers, had a less-rosy view: 8 percent. At 6 percent, a March metro-area median price of $203,000 with a 5 percent down payment -- typical of most first-time buyers -- would mean a principal and interest payment of $1,156.23 a month. At 8 percent, that monthly payment rises to $1,415.06.

"That's enough to throw tons and tons of first-time home buyers out of qualifying, and that doesn't include mortgage insurance, taxes and homeowner insurance," said Abed, who also is CEO of Northwest Mortgage Co. in Bloomington. "Will it shut our housing market down? No. Will it be as brisk as it is today? No."

David Berson, chief economist for Fannie Mae, the nation's largest source of residential funding, reached for a historical example to try to predict the future.

"Four years ago, in May 2000, interest on 30-year fixed-rate mortgages climbed to 8.65 percent," Berson said. Neither existing nor new-home sales changed even one percentage point, and the Twin Cities area actually recorded a new high in sales: 48,208.

"If rates are up because the economy is strong, the job market is better, income growth is stronger, confidence is higher, then the negative effect of the higher rates can be mitigated, perhaps even completely as we saw in 2000," Berson said.

People adjust

Industry leaders say rate stability and the health of the economy are more important than the actual rate level. Buyers adjust. Slow rate increases aren't too troublesome, but rapid increases are.

Also, "if rates are increasing in a recession, it'll have a bigger impact than it would when rates increase during periods of economic growth," Allen said. Even if mortgage rates rise to 10 percent during a time when the economy is relatively healthy, home sales probably won't fall by more than 5 percent, he added.

The state of the economy would have an impact on affordability, which measures median household income against median home prices. Affordability now is 153 percent, meaning that a household with the Twin Cities area's median income of $76,400 has 153 percent of the income needed to buy the area's median-price home. The median is the point where half are more, half are less, and the median home price in March was $203,000.

And buyers no longer feel chained to an interest rate. "Refinancing has become almost as common as paying your taxes," said Edina Realty agent Budd Batterson. As rates rise, "we'll see more people going to adjustable-rate loans or taking the high rate with the expectation of refinancing when rates fall."

Sales to stay strong

Industry leaders say immigration to the Twin Cities will help keep sales numbers strong.

"We're a population center, a magnet for the Midwest," Batterson said. "That's why we've had these record years; it's been population-driven."

A good deal of the area's population growth is from the children of migrants remaining and starting their own households. At the same time, empty-nest parents downsize, becoming both sellers and buyers and keeping the market fluid. "People aren't buying a home to stay in all their lives," Batterson said. "They're looking for a house to meet their needs today."

Also, "homes now are being seen as part of one's portfolio," he said. "Younger buyers, in their 20s, are concerned about what their net worth will look like, and there's a tremendous desire to get into that first home. ... Their strongest motivation is to get on that housing train and ride."

So even as interest rates rise, old-timers say it's important to keep things in perspective.

Coldwell Banker Burnet agent Jan Rapheal began selling real estate in 1977 and remembers seeing interest rates soar beyond 18 percent in the early 1980s before falling.

"I remember the day interest rates went under 12 [percent]," she said. That was when she looked at colleague Sandy Espe and exclaimed: 'Yes! Now we can sell real estate!' "

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