Two headlines today capture the forces that are pushing and pulling on the U.S. housing market: First, the Commerce Department reported Friday that housing starts rose to an 896,000 annual rate in July, way up from the 836,000 recorded in June. Builders are starting to build! But at the same time, in the bond market, interest rates are rising; the 10 year U.S. treasury yield rose to 2.84 percent Friday, the highest in two years. That in turn is putting upward pressure on mortgage borrowing costs.

Here's why those are both such powerful forces, and it's hard to know for sure which will prevail.

First, on housing starts, while they're up a lot from the lows of 2009, have still come nowhere close to the 2 million or so annual rate of the housing boom years, or even the 1.3 million annual rate of new households being formed that was typical of the pre-crisis years.

In other words, as this chart shows, there is still a lot of room for the construction industry to ramp up production without coming anywhere close to the unsustainable levels of construction of a decade ago.

But at the same time, the rise in mortgage rates is real, and has happened remarkably fast. This is the average national rate on 30 year, fixed-rate mortgages going back a year:

That's a pretty stunning rise, and it has taken place since the start of May. For someone taking out a $200,000 mortgage, that increases the monthly cost of owning a home by a whopping 12 percent.

The relationship between home sales activity, home prices and construction activity is indirect. More buyers in the market means they bid up home prices, and higher prices in turn lead builders to try to build more houses. But the July data is the first real evidence we've seen of whether higher mortgage rates will affect the housing industry more broadly. And the early signs, at least, are that builders are not being scared off by higher mortgage rates that make the houses they sell less affordable.