Rising interest rates are already slowing the economic rebound and weighing on housing markets and the extended government shutdown won’t help, according to a new economic forecast from government-backed mortgage entity Freddie Mac. 

Freddie expects that rates will be about 4.3 percent by the end of the year, and rise higher in 2014. Inventory, however, will remain tight, as the supply of distressed housing is exhausted, many homeowners are still underwater and new construction is not sufficient to bridge the gap.

"The housing recovery keeps chugging along despite a constant barrage of disruptions to the broader economy. We’re likely going to see the housing recovery slow down, but not shut down, as we close out the rest of this year due to tight inventories in many markets, rising mortgage rates and slumping consumer confidence. Fortunately, the housing recovery should continue to absorb the economic shocks in stride and improve next year," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

The organization was somewhat gloomier about the overall economic recovery, however. With the government shutdown helping to knock down economic growth by another 0.5 percent, according to its projections, Freddie’s economists expect that the economy will continue to underperform through 2015.