The sizzling housing market can be finally expected to cool down as the rising mortgage rates make home buyers pause before making a decision. Realtors, however, remain optimistic as they project the market will still remain vibrant despite relative slowdown.

Much will depend on the smoothness of mortgage rates climb. If rates continue to edge in little steps, sales of both new and previously owned homes that posted records in the past four years, can still be expected to hit the second-best year in history.

Last month, sales of previously owned homes were down 0.4%, while new home sales were up 9.4% - the largest gain since December 2000.

The mortgage rates in the meantime staged a sixth straight weekly increase hitting a 6.01% last week, thereby overcoming the psychological 6% threshold. The rates are projected to continue to rise as the Fed’s latest statement expressing concerns over the increasing inflation pressures promises more aggressive moves in the future. So far Fed’s actions have had little effect on long-term rates, a situation that puzzled Fed chairman Alan Greenspan who called it a ’’conundrum’’. Greenspan at the same time invariably reacted with stoic calm to the allegations of a housing bubble, reiterating that he does not see any reason for worry.

Analysts’ assessments for the most part agreed that there are signs of overheating, pointing to the increasing number of speculative investors in the market, with predictions ranging from a sharp fall to a soft landing. Now at last the signs of quiet slide are evident in some areas that has been especially sizzling.

Loan brokers in San Fransisco’s Bay Area signal that buyers are more and more squeezed for funds as one person eager to purchase property often faces competition from ten or twenty other buyers. Even those who aim at housing over $300,000 continuously get outbid. With interest rates climbing, however, buyers will get access to the houses put in the market by homeowners who fear that higher mortgage rates may stop many people from buying a home in the future. In the meantime, the median home price in the nation rose to $230,700 in February, a 5% gain from $191,000 in January and an 11% increase from the same month a year ago.

The jeopardy to the nation’s economy that is posed by the cool-off in the real estate market will depend on the speed of the rise. Mortgage bankers predict a rate of 6.75% by the end of the year, and any rise beyond this point would set markets on edge. The steep rise would be especially painful for those 14% of the approximately 73 million home-owning households that have adjustable-rate mortgages, the rates on which depend on the underlying indices. The creep-up in rates always pose a threat to the ARM holders, though most who opt for a fluctuating rate are in the upper bracket and will be able to handle increase in payments.

Overall, mortgage lenders may have to take a cut in the number of applications in the months to come. Short-term will probably see a rise in sales as property owners will hurry to take advantage of the still hot market, but the long-term future will probably bring down the desire to buy into still high prices at the rising rates.