Yes, interest rates will rise, and, yes, they will adversely affect real estate activity. The increases in long rates will not be enough by themselves to stall activity. The real issue is the impact even modestly rising rates will have on those American families that have stretched their budgets to fit into large a house as they could in order to cash in on rapidly rising house prices. Now it’s time to pay the piper, and pockets are shallow. Real estate is still appreciating, but not as rapidly. When homeowners are presenterd with an upward adjustment in the payments on their no down payment interest only ARMs, they will find it hard to pay the bill. Even if they do, their ability to spend on others things will be diminished. So, even if the rate of defaults doesn’t rise significantly, consumption spending and thus the growth of GDP will be hurt. But foreclosures will rise. Data for the first quarter of 2006 suggest that delinquency, default and foreclousre rates are up. They will be up in the second quarter as well.