NEW YORK ( TheStreet) -- Buying a home has become more expensive because of rising home prices and interest rates, but it appears it would take more to shake the housing recovery. In Fannie Mae's June National Housing Survey, 72% of the respondents said it was still a good time to buy a home, even though the share of respondents who expected mortgage rates to increase in the next 12 months rose by 11 percentage points to 57%, the highest level in the survey's three-year history. The share of respondents who believe home prices will go up in the next year also hit a survey high of 57%, underlining consumers' confidence in the housing recovery. "Consumers may recognize that today's still favorable mortgage rates and homeownership affordability levels will recede over time," said Fannie Mae economist Doug Duncan. "Given rising home and rental price expectations and improving personal financial attitudes, more prospective homebuyers may be deciding that now is the time to get off the fence." Housing and mortgage analysts have also argued that the rise in interest rates, while denting affordability, is unlikely to deter the recovery. In fact, some have concluded that interest rates have only a limited impact on home prices. In a report released Sunday, KBW analysts look at past behavior of home prices in the U.S. and in the state of California during periods of rising interest rates, starting from the 1980s. Rising interest rates did not cause a drop in home prices as is commonly feared. In fact, the analysts found that historically rising home prices and rising interest rates went hand-in-hand. This was because "early in a recovery period for home prices, positive economic growth and increasing demand for housing offset rising financing costs," they wrote. Interest rates appeared to have a very small impact on home prices. For instance, between January 1993 and January 1995, interest rates moved from about 8% to a little over 9%. Home prices in the U.S. still rose, irrespective of the move in rates. In California, however, home prices declined, as the local economy was still climbing out of recession.
Between 2003 and 2007, similarly, home prices rose in both the U.S. and in California, while interest rates rose. Later, in 2007, prices plummeted during a time of declining interest rates. "We are not attempting to draw a conclusion that higher mortgage rates support rising home values," the analysts emphasized in their report. "Rather we are suggesting that the direction of mortgage rates has little impact on the direction of home prices, as other factors, such as economic growth and home supply, are likely the key drivers of home price movements." Indeed, while low interest rates have enabled many people to refinance or purchase homes, they are not the reason behind the rise in home prices. Rates were low for a long time after the bust, yet home prices went nowhere but down until March 2012. Rather it was the decline in excess supply of homes that kickstarted the housing recovery. For now, the supply of existing and new homes remains constrained, but it is expected to ease as more sellers list their homes and homebuilders ramp up construction. This could moderate price gains, especially if mortgage credit standards remain tight, forcing more people to rent. -- Written by Shanthi Bharatwaj New York. >Contact by Email. Follow @shavenk