07/03/2013 10:40 pm ET Updated Sep 02, 2013

Mortgage Application Activity Could Stall If Inflation Heats Up

A continued rise in mortgage rates will impact potential home buyers and refinancers, but it is refinancers who are most likely to scrap their plans altogether. Meanwhile though, a new cloud appeared on the economic horizon which could discourage home buyers as well.

Rates and activity

The Mortgage Banker's Association reported that during the last week of June, 30-year conforming loan rates reached their highest level since July of 2011, at 4.58 percent. Not surprisingly, this had a dampening effect on mortgage application activity. Overall application activity was down by 11.7 percent for the week, on a seasonally-adjusted basis.

Significantly, though, the rise in rates is having a more acute impact on refinancing than on buying. While refinancing activity was down 16 percent during the last week of June, purchase activity was off just 3 percent.

This disparity is understandable. Refinancing is usually a cut-and-dried financial decision you could pretty much base on the results of a refinancing calculator: If you stand to save money after any associated fees and expenses, you refinance. As rates rise, those refinancing calculators will be churning out unfavorable results for more and more homeowners.

Buying a house, on the other hand, is a more complex decision. While results from a mortgage calculator enter into it, buying also may involve less quantitative factors such as the desire to transition from renting to owning, or a change in locations. Thus, more of these plans are likely to go ahead despite a rise in mortgage rates.

Inflation could also impact activity

What could become a serious threat to both would-be buyers and refinancers is inflation. Although inflation has been very tame in recent years, a new cloud has appeared on the horizon in the form of higher oil prices.

Oil prices have mostly been trending upward since mid-April, and in early July they surged above $100 a barrel on concerns about unrest in Egypt. Oil is a critical component of inflation on its own, and can also influence the prices of many other consumer goods and services.

If interest rates rise because economic growth is picking up, consumers may still be in financial position to buy a home. However, if inflation brings higher rates without a stronger economy, it could slow buying activity along with refinancing activity.

"This article originally appeared on Calculators4Mortgages: Mortgage application activity could stall if inflation heats up"