On November 10, 2004, just a few days following the U.S. Presidential Election, Fed Chairman Alan Greenspan will raise interest rates another one-quarter-percentage point. This will be Greenspan's fourth rate increase this year, pushing the federal funds rate to 2%, a 100% jump from the rate in April of this year.

Are higher rates starting to affect the housing market? You bet they are. Just look at the following statistics:

-- Mortgage applications fell almost 10% last week. Refinancing applications fell 14%.

-- The price of lumber on the futures market started a nosedive in early September and has yet to bounce back... not even a technical rally from a severely oversold condition.

-- The stock prices of all the major new home builders in the U.S. are in downtrends. A few of the bigger companies, like Pulte and Toll Brothers, actually experienced "gap down" days in their stock price.

What's going on? How can a one-percentage-point increase in rates make such a difference in consumer demand?

I'll start off by saying I really don't pay much attention to one- week mortgage or refinancing application statistics. We need to see a few weeks of data. But again, I'm not concerned with what happened, I'm concerned about what's going to happen.

And that brings me to the fall in lumber prices on the futures exchange and the action of home builder stocks on the stock exchange-because these are leading indicators. What's happening is simple economics: The higher interest rates go, the lower the demand for money, and the lower the demand for housing. The markets are seeing this better than anyone else.

At this particular time in history, because interest rates were so low recently, consumers are overextended with personal, credit card, and mortgage debt. The typical American family's debt/income multiple has reached very uncomfortable levels. And, with most mortgages being variable-rate, higher interest rates are making the average family debt-to-income ratio a little too uncomfortable.

If Greenspan's intent was to cool the housing market, he's off to a good start. The real test of whether consumers will become very uneasy borrowing more money, or if they'll simply start to feel the pinch, will depend on Greenspan's next interest rate move after the November increase. Stay tuned, it's going to get very interesting.