The recent rise in mortgage rates could shave between 0.2 to 0.3 percentage point from economic growth over the coming year, with the largest pinch being felt during the third quarter, according to an analysis by economists at Goldman Sachs.

image014The Federal Reserve surprised markets on Wednesday when it opted not to begin an anticipated wind-down of its bond-buying program. Already, expectations of a Fed pull-back had driven up the cost of getting a mortgage, which in turn has offered some evidence that the frantic price gains in the housing market witnessed earlier this year will slow.

Goldman economists tried to quantify the impact of higher mortgage rates on any slowdown in housing activity. The rise in rates, which stood at 4.75% last week for the average 30-year fixed-rate mortgage, up from 3.6% in early May, can explain “some but not all of the slowdown” in recent housing data, wrote David Mericle of Goldman Sachs.

Mr. Mericle looked at three key areas of the housing market: new construction, sales, and prices. Here’s what he found:

On new construction, the drop in rates boosted new construction by around 0.7 percentage points per month between the middle of 2011 and the middle of this year, accounting for around 9 to 10 percentage points of the 25% to 35% year-over-year growth during that span. That 9-10 point gain of the past two years could subtract around 2 percentage points from growth in construction during August and September, according to the analysis.

New home sales in July fell by 13% from June, and mortgage rates contributed around 3.5 percentage points to that drop. Goldman’s analysis implies a further 2 to 3 percentage point drop in August and September, followed by a possible rebound during the fourth quarter. The impact on existing home sales could be smaller and it could show up later in the year, the analysis found.

As for home prices, the Goldman reports said that rates have a “more persistent but more lagged impact on home price growth than housing activity growth.” Lower rates had been contributing around 0.3 percentage points to monthly home price gains, and they could now add just 0.1 percentage point to home price growth.image015

Altogether, higher rates could slow the pace at which prices rise, as buyers adjust to a slightly higher monthly mortgage payment than they would have found earlier this year. Any slowdown on sales and construction activity could subtract 0.15 to 0.2 percentage point from residential investment, a key component of housing’s contribution to economic growth, over the next year. A slower pace of home price inflation, meanwhile, could subtract 0.05 and 0.1 percentage point as a result of a smaller wealth effect, which is the process by which consumers spend more because their houses have gained value.

The longer-term case for a housing recovery hasn’t changed, the report adds, because the current rate at which households are forming suggests that 1.5 million housing units will be needed annually, well above the current level of less than 900,000.