Today's phenomenally low mortgage interest rates, which have hit 40-year lows, have been the fuel propelling the hottest housing market on record. The reason for that is apparent in this example: The average interest rate for a 30-year fixed rate home loan in April 2000 was 8.5 percent and the monthly payment on a $163,000 mortgage was $1,253. But today, with an interest rate of 5.85 percent, the payment on the same mortgage would be only $962, according to economist Phil Colling with the Mortgage Bankers Association of America.

Mortgage interest rates were around 8 percent in the early 1970s, hit a high of 18 percent in the early 1980s, then headed down to 10 percent by 1990, according to John Burns, president of RealEstateConsulting.com.

"If interest rates went from 6 percent to 9 percent would we see a collapse in the housing market?" mused MBA Chief Economist Doug Duncan. "Absolutely, at the short run, you would see some adjustment. How much would it collapse? That would depend on where each local market was (at the time)."

Economists and experts generally agree that interest rates won't rise sharply any time soon. Most place mortgage rates somewhere in the seven percent range by next year梐 level high enough to cool refinancing activity, but still reasonable enough for home purchases.

2. Home prices. Rising home prices indicate the housing market is strong. But homes must be affordable for the housing market to maintain robust sales over time.

Skyrocketing home prices have resulted from strong demand for homes coupled with limited inventory of homes for sale. Last year the national rate of home price appreciation was 6.3 percent and the median price of existing single-family homes rose to an all-time high of $157,000, according to the National Association of Realtors.

Are higher prices are making houses unaffordable? Homeowners ideally shouldn't spend more then 30 percent of their income on their mortgage payment. But the rapid rise in home values over the past four years has consistently outpaced household income growth, according to a study by Harvard University's Joint Center for Housing Studies.

And as the pace of home price appreciation continues into the double-digits, more prospective home buyers are priced out of the market. Affordability constraints result in lower demand for housing and, along with that, lower home prices.

Burns compared home sale price data with household income data in 44 major metropolitan areas and concluded that housing in 17 of the areas was "over-priced."

3. New home starts. Construction of new homes is another determinant of whether the housing market is healthy.

Buying land and obtaining building permits are time-consuming and costly ventures. Builders must think ahead and make prudent decisions or risk triggering a housing glut, which could cause home prices to decline--along with builders' profits. Watching home builder behavior is another way to gauge the market.

Lack of buildable lots, zoning and growth regulations and such geographical barriers as shorelines also put the pinch on new home construction.

R. Randy Lee, CEO of Stanton Island, N.Y.-based Leewood Real Estate Group, pointed to over-building as a cause of the 1980s housing bust, but said that scenario is unlikely to be repeated. Land-use restrictions, the lengthy permit approval process and the watchful eye of banks and stockholders help keep new home construction in check.

"You just don't have the ability to over-build and build ahead, and the banks won't finance it," said Lee. "Public companies are being ever more cognizant of their bottom line. The stock price (adjusts) the minute the analysts see that (a builder's) inventory is out too far....and (investors will) kick the you-know-what out of the (stock) prices (if the inventory is excessive)."

The Commerce Department reported in August that new home starts fell for the third straight month in July and that the pace of new home construction was at its slowest rate since November 1997. Despite that trend, the National Association of Home Builders expects a record of nearly 1.66 million single-family home starts by year's end.

4. Home sales. The pace of home sales is the purest measure of the housing market's strength. Closings reveal the number of people buying houses and the prices they paid for those houses.

But sales figures can be misleading because they typically lag behind the market by six months.

NAR has forecasted existing-home sales will reach yet another record of 5.47 million units this year, then drop to a still-high level of 5.28 million next year.

5. Housing supply/unsold inventory. Mix is the ratio between housing supply and unsold inventory, which has flattened lately and suggests the housing market is cooling.

NAR reported at the end of August that housing inventory rose 4.8 percent from July to a total of 2.2 million existing homes available for sale. That represented a five-month supply of for-sale houses at the pace of sales at that time. The Realtor's organization considers a six-month supply to represent a market balanced between home buyers and sellers.

6. Comparing home prices to rents. The ratio of mortgage payments to apartment rents is another way to measure the health of the housing markets. If rents become substantially more affordable, home sales usually will drop.

"Home prices did rise somewhat in relation to rent from 1995 to 1999, and have fallen a bit since," according to a Bridgewater Associates report, "Are U.S. Housing Conditions Beginning to Deteriorate?" But the report concluded that the movement between prices and rents didn't appear to be "particularly extreme."

Low- and zero-down payment mortgages combined with low interest rates have helped millions of low- to moderate-income households make the switch from renting to homeownership. The result has been higher house prices and higher rental vacancy rates, which force landlords to lower rents.

7. Homeowner equity and refinance activity. When home prices are climbing, homeowners are building equity, and that spurs mortgage refinancing activity.

But the gains homeowners have enjoyed from rapid house price appreciation are a double-edged sword. On one side of the sword, equity growth indicates a healthy housing market. But on the other side, cash take-out mortgage refinancing indicates homeowners have increased their debt burden. If home prices fall substantially, homeowners whose pockets were bulging with borrowed equity could find themselves "under water," that is, owing more money on their mortgages than their homes are worth.

Approximately 7 million homeowners last year refinanced existing mortgages and more than half of them took out a total of $80 billion cash in the process, according to the Harvard study and Fannie Mae.

8. Foreclosure rate. The rate at which homeowners default on their mortgage payments and the rate at which lenders foreclosures on those defaults are two other interesting housing market barometers.

If the housing market is strong, financially distressed homeowners can sell their homes and avoid foreclosure. But the number of foreclosures will rise if demand for housing slows and distressed homeowners aren't able to sell their home quickly.

Relatively new innovations in mortgage products have produced affordable and easy-to-obtain mortgages and low interest rates have substantially increased the number of high-risk mortgage loans, which historically have a higher rate of foreclosure.

"There is going to be a rise in default activity, and a lot of people will be howling at the moon saying, 'I told you so,'" said John Karevoll, an analyst with DataQuick. "But the fact is all this (risk) is built into the system (and built into) the cost of the loan."

9. Housing turnover. A high rate of turnover in the housing market typically has been associated with speculative buying, which can inflate home prices and signal a bubble, according to the Bridgewater report.

The rate of turnover, which measures how frequently homes are resold, has increased from a low of less than 4 percent in 1995 to about 5 percent today, according to the report.

The turnover rate was less than 4 percent in 1975, but by 1978 it had shot up to slightly more than 6 percent. In 1982 the rate was below 3 percent, but by 1986 it had more than doubled to just under 5 percent.

10. Real estate industry stock performance. Confidence in stock market performance is fading due to the poor investment returns and continued exposure of corporate scandals. But monitoring real estate industry stock prices can indicate how bullish or bearish industry analysts are about the housing market.

"The U.S. home building sector of the equity market has massively outperformed the market as a whole" over the past two years, according to the Bridgewater report. "However, since last spring, the U.S. home building sector has been under-performing the market as a whole."

Burns, for one, isn't particularly concerned about the slight decline in the price of home builder stocks.

"Most home builders are enjoying record profits," he said. "There is speculation that the robust (housing) market can't go on forever and their stock prices are affected by that. Most analysts reports are recommending 'buy' to 'strong buy'; they think (the stocks) are under-valued."