We appear to hold the minority opinion on mortgage rates: Most market watchers believe they remain an important variable in sustaining both the housing and the economic recovery.

A few years ago, lower rates were an indispensable variable. Many households had mortgages three or four percentage points above today's rates. The savings realized by refinancing or purchasing a home at a lower rate could amount to hundreds of dollars each month. This was especially important to household cash flow at a time when the economy was mired in a recession.

But the fact is that most everyone will have taken advantage of today's historically low rates by the end of the year. After each refinance, the marginal economic benefit drops. In other words, the impact of lower rates has diminished.

Here's another consideration: Rising rates will likely be accompanied by greater economic growth. When we go back to the 1990s, mortgage rates were 300 or 400 hundred basis points higher than they are today, and the housing market performed fine. The key distinction is the 1990s were marked by strong economic growth, which meant more people were able to service a higher borrowing rate and a higher home price.

The point we want to emphasize is that higher mortgage rates won't stall the housing recovery if they are accompanied with economic growth, and that will likely be the only way rates will rise. This is why we say higher mortgage rates are nothing to fear, and if they are accompanied by higher economic growth, should actually be embraced.

Courtesy of Jessica Regan.

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