Homebuyers face a challenging landscape as mortgage rates soar, with the average rate on the 30-year mortgage reaching 7.37% on Thursday, up sharply from 7.11% earlier in the week, according to Mortgage News Daily. This rapid increase follows a hotter than expected inflation reading, rattling investors.

Freddie Mac also noted a rise in weekly average rates, climbing to 6.88% from 6.82% the previous week.

The spike in rates has put pressure on potential buyers, causing both repeat and first-time buyers to reconsider their purchase plans. With inflation remaining high, the outlook for mortgage borrowers has become increasingly unfavorable, according to housing industry experts.

While rates have surged, there has been an unexpected increase in refinance applications. The Mortgage Bankers Association  reported a 10% jump in refinance applications, driven primarily by Veterans Affairs  refinance applicants.

The surge in refinance demand suggests homeowners’ sensitivity to even slight rate fluctuations. Many homeowners, particularly those with government loans, are eager to secure lower rates amid rising inflationary pressures.

However, the story is starkly different for prospective homebuyers, as demand for purchase applications declined by 5% compared to the previous week. The Federal Reserve’s expected delay in rate cuts due to persistently high inflation has further dampened housing sentiment.

Despite these challenges, there is some optimism for the housing market, with Fannie Mae predicting an increase in inventory and a gradual adjustment to higher rates. This sentiment is echoed by the recent uptick in the number of homes actively for sale, signaling potential relief for buyers in the months ahead.