Mortgage lending rates were once again the lead story in housing, as well as in many media outlets.

In many markets, rates are up 60 basis points or more over the past six weeks. This means potential borrowers and new home buyers are facing financing rates unseen since April 2012.

Interestingly, rising rates actually had a stimulative effect on mortgage activity last week, according to Mortgage Bankers Association data. The MBA's latest activity report shows that both refinances and purchases were up 5%. For most of the past month, refinance activity was declining at a double-digit weekly rate, while purchase activity was mostly flat lining.

We're not surprised to see an uptick in purchase activity; expectations govern behavior. If potential borrowers believe higher rates are in the future, they'll act today to beat the increase. If they are fence sitting, their expectations of lower rates will keep them there, but a change in expectations (exceptions of higher rates, to be specific) will prompt them into action.

We admit to being slightly surprised (and pleasantly so) at the reversal in refinance activity. With mortgage rates holding so low for so long, it's easy to take for granted that everyone who could take advantage of a refinance has. That's obviously not the case. And even though financing rates are higher for refinances, expectations still play a role.

The good news is that more homeowners are in a position to refinance. CoreLogic reports that the number of underwater homeowners has dropped below 10 million for the first time in more than three years. That's a significant improvement over the 12.1 million who were underwater at the end of 2011.

Of course, these homeowners have been floated by the relentless increase in home prices that's occurred over the past year. CoreLogic's data show prices up nationally 12% year over year in April. Moreover, the numbers from most housing-data providers corroborate CoreLogic's numbers.

Despite higher rates, we expect refinance and purchase activity to remain robust. We also expect housing activity to rise: Higher prices will draw more inventory into the market. Above-water homeowners (and even submerged owners who don't have to bring money to the table) are more willing to list their home. As we know, lack of inventory has restrained sales growth over most of 2013.

We've frequently stated that today's higher lending rates aren't necessarily to be feared, especially when placed within an historical context: It wasn't all that long ago when a 6% 30-year fixed-rate loan was considered a bargain.

 Courtesy of Jessica Regan.

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