While consumers may not be as sensitive to rate increases as expected, they are still watching those numbers closely. As interest rates rose steeply in early September, enthusiasm for home buying cooled a touch. According to preliminary numbers from New York-based research firm The Conference Board's Consumer Confidence Index, the percentage of consumers planning to buy a home in the next six months slipped slightly, to 2.9 percent. Just one-tenth of a point below the readings in June (a banner month for housing), the figure was still the lowest since 2000. The major culprit? "I think it's the rates," says Lynn Franco, director of The Conference Board's Consumer Research Center. At the time, mortgage rates had spiked as high as 6.44 percent on a 30-year loan after a summer of financing bargains.

But, as rates fell again, interest in housing bounced back by month's end. Investment bank Raymond James & Associates reported that September new-home sales in 16 top markets were 20 percent higher than last year. The NAHB's Housing Market Index (HMI), which is based on builders' current sales, expected sales, and buyer traffic, hit its highest level since 1999, as interest rates dropped to 5.77 percent in early October. "The October HMI clearly demonstrates how sensitive the housing market is to changes in interest rates," NAHB President Kent Conine says.

Such new-home resilience fits with the details from The Conference Board survey. Overall home-buying numbers dropped in those preliminary results, but the percentage of those planning to buy a new (as opposed to an existing) home stayed about the same. "People firmly committed to buying a new home are holding steady," says Jonathan Dienhart, a research consultant with The Meyers Group, a real estate research and consulting firm.

Less steady are people's feelings about the economy and their prospects, attitudes affected by mixed economic news. "The overall consumer confidence index is being driven by the labor market, which looks like a roller coaster," Franco says. Rebecca Wood, an economist with The Meyers Group, agrees. Consumers "are not so sure about the job market," she says. "That's what's hammering consumer confidence."

Economists agree that employment, always a lagging economic indicator, has been particularly sluggish in this recovery. With the economy growing, though, many hope to see positive job numbers by year's end, which should support housing. So should interest rates, which are expected to stay near 6 percent into 2004, according to NAHB forecasts.