Here are some of the questions I am most often asked about rising interest rates:

Q: When interest rates rise, what happens to home sales and home prices?

A: Your cost of borrowing is one of the primary components of your housing expense. So it’s reasonable to expect that as rates rise, costs rise. And as costs rise, the number of persons trying to buy should decrease.

And it follows that as sales decline, the law of supply and demand should force prices lower.

However, things don’t always work they way they are supposed to.

In fact, as the specter of higher rates has risen, there has been a rush to buy by those who were "sitting on the fence," hoping that rates might turn lower before they committed. Now we can say with certainty that the fence sitters waited too long.

In addition, there seems to be a surge of buyers who are afraid that if they don’t buy a house now, they may not be able to afford one in the foreseeable future. They hope to jump on the train before it leaves the station.

Both of these sources of buyers are temporary in nature. As the fence sitters either buy or give up, and as the train-jumpers either jump or get left, we can reasonably expect to see demand decline from the record levels of the past few years.

Q: Does that mean that the bubble is about to pop?

A: No. Instead, it means that our economy is basically healthy, and that the real estate market is taking a well-deserved breather from the race it has been running. Even Lance Armstrong needs to take a short break once in a while.

Q: Is it likely prices will go down?

A: Yes. In some parts of the country, prices have been driven up in wild speculation and dramatic bidding wars between buyers. In places like San Francisco and Las Vegas, home price appreciation has been far beyond the national average, and it is not surprising to expect that some of the froth may be let out of prices there. Thus some overheated markets may actually see a price decline.

In contrast, some markets have seen only modest growth for the past few years, and that growth has matched slow, but steady, economic growth in those same communities. In these areas, it is unlikely that prices will drop. Instead, I predict a "soft landing" for most of America, and buyers should expect a market that simply slows down a little.

Q: When you say "slow down," what do you mean?

A: I expect the average selling time for homes in the Atlanta market to increase, and I expect new home inventory in this market to increase, but I don’t expect any serious problems for buyers or sellers.

It is important to remember that even with long term rates at seven or even eight percent, these levels are affordable for the vast majority of those who wish to own a home, especially in markets like Atlanta where prices are below the national average.

Q: When interest rates rise, do buyers have any alternative to higher costs?

A: Yes. When interest rates go up, the mortgage market typically responds with a variety of programs designed to ease the pain of the homebuying public. For example:

* Lenders will likely offer a fixed rate loan program with a stair-step buydown in the first three years of ownership. In other words, the buyer is offered a 30 year fixed rate loan at, say, 8 percent. But in year one, the rate is lowered to 5 percent. In year two, the rate is 6 percent, and in year three, the rate moves to 7 percent. Then in years four through thirty, the rate stays at 8 percent. This is called a 3-2-1 buydown, and is very popular with builders of entry level homes.

* Lenders will find a way to allow buyers to get almost any rate for the first year or two, so long as borrowers agree to an adjustable rate in future years. These are called "teaser" rates, and begin well below market rate, but have an escalation feature allowing the rate to increase on a specified basis, such as every six months or so.

* In the late 1970's, rates were so high that no one could afford to buy. So lenders came up with a "negative amortization" loan, in which the required monthly payment failed to cover even the monthly interest expense, so the loan balance actually increased until the end of the fourth year. At that time, stair-stepping payments finally overtook the increasing interest expense, and reportedly paid off the balance in the remaining 26 years.

Home mortgage lenders have become extremely creative at finding ways to make home ownership more affordable, even in the face of rising interest rates and higher prices. Watch for new and innovative programs to surface in the years ahead, particularly aimed at first time buyers.