After a three-week climb that saw mortgage rates on 30-year fixed loans flirt with the 6% barrier, rates finally receded last week, falling from 5.88% to 5.70%, according to the BankingMyWay weekly mortgage rate tracker.

For the week, 15-year fixed-rate loans fell even further, from 5.43% to 5.21%, and one-year adjustable-rate mortgages (ARMS) fell from 5.04% to 4.77%. The lone exceptions to the downward tilt were three- and five-year ARMS, which continued creeping upward, from 5.15% to 5.16%, and from 5.43% to 5.45%, respectively.

No doubt about it, higher rates have thrown a wrench into both the U.S. housing market, and into the U.S. economy, threatening to crush those “green shoots” that economists keep talking about.

According to the Mortgage Bankers Association, refinancing, as measured by the MBA’s refinancing index, was down for the week, off 23.3%, while bank mortgage loan volume was down 15.8%, according to the MBA’s weekly mortgage applications survey.

That decrease in mortgage activity should rebound this week, as rates fall backward – if only for the short-term. Good deals can still be had on mortgages in the 5%-to-5.50% interest rate range, once borrowers get over the fact they missed the boat on those 4.75% rates that good credit candidates could have had in April and early May.

But the supposed rising threat of inflation and an unemployment rate that crested 10% with no solid signs of easing have helped fuel the weeks-long hike in interest rates that we’ve seen in June. The unemployment numbers are a real problem – mortgage activity should continue to be limited if the U.S. economy continues to shed jobs, as many economists are predicting throughout the rest of the year. But inflation could be another story. Despite weeks – even months – of fretting by economists, especially those policy-shaping analysts at the Federal Reserve, inflation still hasn’t landed a broadside blow against the U.S. economy.

If anything, deflation is a bigger issue than inflation, especially on the credit front. There’s a popular saying making the rounds on Wall Street of late, noting that “deflation is a fact, inflation is just an opinion.” Right now, consumer demand, the engine that drives rampant inflation, is still too weak to muster up any big inflationary anxiety – and that’s not likely to change until at least the December holiday shopping season – if then. And two of the key indicators of inflation, the producer price index and the consumer price index, were up, but barely so, in May. Both came in well under economists’ predictions, at an 0.2% increase for the PPI and an 0.1% increase for the CPI.

But there is a mountain of debt to be paid off out there in the U.S. economy, both on the commercial and consumer sides, and until that happens, don’t expect deflation to exit the stage soon. When it does, things can change fast, and inflation may indeed rise and engulf the economy and housing market, much like that giant wave engulfed the Andrea Gail in The Perfect Storm. But there are just no solid signs of that happening yet – just some long-range indicators like the overabundance of spending in Washington and the potential devaluation of the U.S. dollar.

Another key factor impacting mortgage rates is the moderate fallback in 10-year U.S. Treasury rates, which historically, are tied fairly tightly to mortgage rates. Treasury yields had risen from 2.5% in March to 4% only a week ago. But rates have stabilized somewhat, falling back to 3.6%, before settling in at 3.8% at the end of the week. Look for mortgage rates to track 10-year Treasury yields closely – if Treasuries continue to fall, expect mortgage rates to stay level, or even track downward if Treasury yields fall below 3.5%.

It’s a tricky time for mortgage watchers. The upward trend in recent weeks has leveled off, at least for this week. For future indicators, watch the key inflation indexes, unemployment rates, and 10-year Treasury yields.

As always, to find the best deals on mortgage rates, visit BankingMyWay.com’s mortgage rate search engine.

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