Rates for 30-year home loans fell back this week after soaring to the highest level in seven months a week earlier.  The average rate for a 30-year fixed mortgage was 5.38 percent this week, down from 5.59 percent a week earlier.

Rates had risen for three consecutive weeks after yields on long-term government debt, which are closely tied to mortgages rates, had been climbing as investors worried that the huge surplus of government debt hitting the market could trigger inflation.

But data released Wednesday suggested that inflation remains largely in check.  Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

Simply put, buyers have a certain amount of money they can afford to spend.  If interest rates shoot up, then house prices will have to fall to make up the difference.  The three-week run-up in rates started to slow home buyer demand.