Interest rates have reversed course, with the 30-year fixed-rate mortgage rising to an average of 5.23% following three weeks of declines.

This week’s rate hikes were the result of increased economic activity and incoming inflation data, said Freddie Mac Chief Economist Sam Khater in an interview with RealtorMag

“The housing market is incredibly rate sensitive, so as mortgage rates increase suddenly, demand again is pulling back,” he said. “The material decline in purchase activity combined with the rising supply of homes for sale will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home.”

The bad news is that things are likely to get worse for borrowers before they improve. The Federal Reserve is expected to meet in the coming week and most analysts predict it will once again raise its key benchmark rate.

The National Association of Realtors Senior Economist and Director of Forecasting, Nadia Evangelou, said in a blog post that investors have been concerned about inflation and the impact of the expected half-percentage point rate hike by the Federal Reserve next week. However, she said “the upcoming rate hike will likely have a smaller impact on mortgage rates this time.”

When the Federal Reserve last raised its short-term interest rate in March, mortgage rates jumped by 80 basis points in the following three weeks, Evangelou said. For instance, the 30-year fixed-rate mortgage rose from 3.85% to 4.67% by the end of March. But in May, when the Federal Reserve announced an even more aggressive rate increase, mortgage rates rose by less than 20 basis points. At the end of last month, rates were hovering at around 5.10%.

“It seems that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes,” Evangelou said. She is forecasting mortgage rates to average 5.6% to 5.7% by late 2022.

With such a sharp increase in interest rates it’s no surprise to see that more prospective home buyers are backing away from the market. The increased rates add several hundred dollars to the average monthly mortgage payment, and many buyers are now opting to put their plans on hold for six months to a year, according to a new survey of 900 real estate professionals by HomeLight.

Around 35% of the surveyed real estate pros said they have seen buyers back out of the market completely due to the higher rates.

A second survey by LendingTree at the end of last month found that many aspiring home buyers need time to financially regroup, due to the rising rates and continued home price gains. The survey said mortgage rate increases have caused monthly mortgage payments to rise by an average of $258.57, or $3,102.84 per year.

LendingTree calculated the difference between average monthly mortgage payments of a 30-year fixed-rate loan in each state based on average annual percentage rates in January and April 2022. It found that mortgage payments have risen the most in California, Washington and Massachusetts. Mortgage payments have increased the least in Ohio, West Virginia and Kentucky, the study found.