National Association of Realtors

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Even record-low mortgage rates failed to pull the housing market out of its funk. And now,  rates are climbing higher.

According to analysts, just as bargain financing couldn’t save the housing market, a gradual rise in rates won’t necessarily crush it. Cheap money matters less than the larger forces at work, especially a 9.6 percent unemployment rate, which keeps would-be homebuyers in fear of losing their next paycheck.

Michelle Girard, senior economist at the Royal Bank of Scotland states: “What’s hurting the housing market right now isn’t mortgage rates. It’s a lack of confidence about the U.S. economy. It’s concern about losing a job.”

On Thursday, Mortgage buyer Freddie Mac said the average rate for a 30-year fixed loan was 4.35%, the first weekly rise since mid-June. That’s up from 4.32% the previous week, the lowest number since Freddie Mac began tracking rates in 1971.

Rates have been falling since spring as investors have shifted money into safe Treasury bonds. That influx of money has lowered Treasury yields, which mortgage rates tend to track.

Even the lowest interest rates in memory couldn’t entice buyers from the sidelines. Sales remain abysmal. The National Association of Realtors reported sales of previously occupied homes plummeted 27%  in July, the worst showing in 15 years.

Record-low rates combined with falling prices mean houses are now more affordable than in decades. In better times, that might fuel a surge of homebuying. But Americans seem to have taken one lesson from the housing bubble, Girard said: Home prices can fall.

Guy Cecala, publisher of the Inside Mortgage Finance, claims the lowest rates in history had almost no effect on sales. He states:  “Home sales went down when mortgage rates went down. These aren’t normal times.”

Improved economic news this month has drawn some money out of Treasurys, pushing up their yields. If rates continue to climb, making mortgages less affordable, will the housing market get even worse?

Not necessarily. At 6%, rates would still look cheap by historic standards. And a large jump in rates would signal a much stronger economy. A decade ago, mortgage rates were about 8%.

“If the economy improves and employment improves, the demand for housing would rise even if positive economic developments lead to higher rates.”

Some economists say the weekly uptick in mortgage rates could be temporary.

Celia Chen, a senior director at Moody’s who covers housing, cautioned against reading too much into the recent uptick in rates. She expects they will fall again as the economic recovery’s slow pace drags home prices down through the third quarter of 2011.

Cecala said economists spend too much time looking at measures of affordability and remain baffled when people fail to go bargain-shopping. She concludes: “If you just stare at mortgage rates, you’ll miss what’s going on in the housing market. Talk to the average person. They’ll tell you they don’t want to take on more debt. They can’t sell their existing home. They’re worried about their job.”