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Many homebuyers are on edge these days. They've watched in recent weeks as mortgage rates have spiked a full percentage point. It's been one of the swiftest rate increases in a quarter of a century. And for those in the real estate market, it presents a dilemma. Should they forge ahead and try to lock in now or hold off and hope rates come back down?

NPR's Yuki Noguchi reports on the conundrum facing today's buyers.

YUKI NOGUCHI, BYLINE: Dhruv Gupta had been searching for a place to buy in the San Francisco area when rates started their rapid ascent. Gupta was quoted a three and a half percent rate in May. Less than two months later, he was looking at 5.2 percent for the same loan. But Gupta is undeterred.

DHRUV GUPTA: It's a fact of life. I mean, I can't control them, so what do you do?

NOGUCHI: Over the weekend, Gupta bit the bullet and put a down payment on a two-bedroom condo in Oakland. Mostly, he says, because it's so hard to find anything available and in his price range.

He hopes rates will decline again and that he'll be able to refinance. But for now, how does the soon-to-be homeowner feel?

GUPTA: I don't know yet. I'm more anxious than excited because of the commitment.

NOGUCHI: Downstate in Temecula, California, Juan Johnson has had the opposite reaction to the market.

JUAN JOHNSON: I learned that the interest rates had changed significantly enough where it made me reconsider my offer.

NOGUCHI: He had been in the process of making an offer on a house when his loan officer told him rates suddenly jumped half a percent.

JOHNSON: I was shocked. You know, I said, you've got to be kidding me right? And he said, nope. And he said, and they're supposed to continue to rise.

NOGUCHI: Johnson says it was already hard enough trying to find a home his family likes and compete against investors making cash offers. Now, he's battling interest rates, too.

JOHNSON: Bummed would be a kind way to put it.

NOGUCHI: So, while Gupta jumped in, Johnson pulled back. Those differing reactions are reflected in the data as well. On the one hand, the Mortgage Bankers Association says purchase applications rose 7 percent between early May and last week. But, according to the real estate website Redfin, the number of clients making offers declined more than 10 percent from May to June. Fewer people are requesting home tours, as well.

Market experts have long said rates would eventually rise from their unprecedented 3 1/2 percent levels. But what touched off the spike was speculation the Federal Reserve would start unwinding the stimulus programs that kept rates low. Then, on June 19th, Fed Chairman Ben Bernanke put a specific timeframe on it, saying the central bank would end part of the stimulus by the middle of next year if the economy continued showing signs of strength.

Investors reacted as if he'd sounded an alarm.

MICHAEL FRATANTONI: Almost as soon as the words left his mouth during that press conference, you had a big run-up in rates.

NOGUCHI: Michael Fratantoni is vice president of research for the Mortgage Bankers Association. He notes that while interest rates are important, job market stability and increasing home prices are more significant factors. And, he notes, demand isn't uniform. Applications for smaller loans have leveled off, but applications for jumbo loans of $729,000 or more is increasing.

FRATANTONI: One reason we're seeing a stronger jumbo market is that we've had a very strong run-up in the stock market. I think people are feeling wealthier.

NOGUCHI: Dean Karlan is an economics professor at Yale University who has studied how people react when interest rates change. He says people got accustomed, even complacent, about the stable, very low interest rates in recent years.

DEAN KAPLAN: But when you see a big jump, all of a sudden that wakes people up.

NOGUCHI: Some people who've considered buying may hurry to pull the trigger. But, he says, volatile interest rates also raise the psychological stakes for consumers, who feel added pressure to time the market right.

KAPLAN: We tend to overweight the things that we've seen recently, and so we see this increase as a big increase and it's attention grabbing but at the end of the day, rates are still quite low, historically.

NOGUCHI: It's better, in other words, for homebuyers to try to forget where rates were and not think about what might have been. Yuki Noguchi, NPR News, Washington.

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