This past weekend, a major luxury car dealer held its annual spring sale event. At this sale, they attempt to sell new 2003 and 2004 models, and some demos, to get ready for the incoming line of next year's cars.

Always a curious consumer, I decided to visit the one-location event to see if consumers were in a buying mood. I befriended a salesperson who I called yesterday to ask how the sale went. To my surprise, the one-day event sold 161 cars... double the amount sold last year at the same event.

Considering this is a luxury car maker, we are talking 161 cars in the price range of $30,000 to $80,000. If I were to bet how many people paid cash for their cars as opposed to financing and leasing, I would guess zero.

Consumers came out to buy cars, to upgrade what they had, because the financing and leasing rates were so low. Can you believe manufacturer financing of only 2.9% and leasing financing of only 3.9%? If I take a median price of $50,000 for a vehicle, consumers borrowed $8.1 million on Saturday to buy these cars. Corporate debt was transferred to consumer debt.

Just look how fast consumer debt can be created! The sale was so successful; the auto maker actually took out ads in yesterday's newspapers to thank the public for its buying support.

The bottom line is that consumers are continuing to increase their monthly financial obligations so they can take advantage of the low rates.

The real test will be how these consumers manage when interest rates start to climb. At this point, most economists are expecting the Fed to start raising rates this year. And that's why you've seen the short-term rally in the U.S. dollar against other currencies. The market has already discounted the rise in U.S. interest rates. We can see this confirmation in the bond market.

Bill Gross, chief investment officer of huge Pacific Investment Management which manages about $350 billion in U.S. bonds, said yesterday that he expects U.S. interest rates to soon rise from their historic lows.

The question now is how far will rates rise and how will it affect consumer spending? My bet is that we are not looking at just one rate increase, but several small increases over time. This will not bode well for the real estate market... and the recent action of home builder and REIT stock prices are already telling us this.