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By Ken Sweet, Michael Casey and Alex Veiga

The Associated Press

NEW YORK 鈥� Kyle Tomcak was looking for a home for his in-laws in the suburbs around Denver. His target was something priced close to $450,000.

The Aurora, Colorado, resident became dispirited as he lost out to investors fronting cash offers $100,000 over asking prices. Then mortgage rates ballooned, putting Tomcak鈥檚 price range out of reach.

鈥淎ll of a sudden, your buying power is less 鈥� even though your payments are the same,鈥� he said.

Tomcak, 39 and a project manager for a commercial painting company, had hoped to lock in a monthly mortgage payment of $2,350. His mortgage consultant recommended dropping the maximum price he鈥檇 pay for a home, first to $300,000 and then to $200,000.

Tomcak has abandoned his search for now.

To fight inflation, the Federal Reserve has aggressively raised short-term interest rates, which in turn has helped push rates higher for credit cards, auto loans and mortgages. Rising mortgage rates have combined with already high home prices to discourage would-be buyers. Mortgage applications have declined sharply. Sales of previously occupied homes have聽fallen for five straight months, during what is generally the busiest time of year in real estate.

The rate for a 30-year mortgage聽averaged around 5.54 percent this week, according to mortgage buyer Freddie Mac; a year ago it was close to 2.78 percent. The increase in rates is leaving buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less desirable neighborhood, or drop out of the market 鈥� at least until rates drop.

All signals point toward the Fed continuing to raise interest rates, promising little relief for potential buyers at least for the rest of the year.

Data provided to The Associated Press by real estate data company Redfin shows how much home a buyer could get with a $2,000-per-month mortgage payment. In Providence, Rhode Island, for example, an average buyer a year ago could have purchased a roughly 4,900-square-foot home for such a payment. Now that amount gets a buyer only a 2,200-square-foot home.

In Seattle, a hotter housing market, a $2,000-per-month payment this time last year would have gotten a buyer a 1,300-square-foot home. Now it would provide only a 950-square-foot apartment.

鈥淪imply put, people cannot afford the same home as they could have a year ago,鈥� said Daryl Fairweather, an economist with Redfin.

Besides pushing would-be homeowners to reconsider their home searches, rising rates are forcing a growing number of buyers who struck deals to back out. About 60,000 home-purchase deals fell through in June. That represented nearly 15 percent of all homes that went under contract last month, according to Redfin. That鈥檚 up from 12.7 percent in May and 11.2 percent a year ago.

For more than a decade, potential homebuyers were willing to put up with rising home prices because mortgage costs were at historical lows. The average rate for a 30-year fixed-rate mortgage mostly stayed below 4.5 percent for most of the past decade, according to data from the Federal Reserve Bank of St. Louis.

Black Knight, a financial data firm, estimates that the rise in mortgage rates has increased a typical borrower鈥檚 monthly payment by 44 percent since the beginning of the year. Since the start of the pandemic, the average mortgage payment has doubled to more than $2,100.

Most of the pain is being felt at the bottom of the market: the first-time homebuyer, who often has the least amount of money for a down payment and is trying to ensure the monthly payment is feasible. Sales of homes priced below $250,000 fell by more than 30 percent in June.

For prospective homebuyers who can handle higher mortgage rates, a cooler housing market has a silver lining 鈥� more options. As homes get fewer offers, they tend to linger on the market longer. The number of homes for sale, which has been rising from ultra-low levels since the spring, increased 18.7 percent from a year earlier, according to Realtor.com.

The market has changed dramatically for sellers as well.

Raymond Martin and his wife listed their home in Austin, Texas, for sale for $1.1 million in early May. They figured selling the four-bedroom, three-bathroom house would be 鈥渁 walk in the park.鈥�

The couple had reason to be optimistic. As recently as this spring, it wasn鈥檛 unusual for sellers to receive multiple competing offers within hours of listing their home, or for some buyers to agree to pay well above asking price while giving up their right to a home inspection 鈥� all to outbid rivals. It was very much a sellers鈥� market.

Instead, the Martins have yet to receive a single offer and have lowered their asking price to $899,000. Raymond Martin, 51, noted that shortly before the home was listed, neighbors sold their similar-size home for $100,000 over the $1 million asking price.

The Martins are living in a new home in Florida while patiently trying to sell the Austin property.

鈥淐learly, the market鈥檚 kind of stalled,鈥� Raymond Martin said.

Historically, late spring to early summer is peak season for buying homes in the U.S., but there are multiple signs that buyers have become discouraged.

The number of Americans applying for a mortgage is down significantly from a year ago. Weekly mortgage applications tracked by the Mortgage Bankers Association are down roughly 50 percent from a year earlier. The decline in mortgage applications could signal a slowdown in future homebuying since potential buyers do not apply for a mortgage unless they have settled on a particular home or condo.

Joe Luca, a Realtor and past president of the Rhode Island Association of Realtors, said buyers are refining their searches 鈥� settling for smaller homes, or choosing a neighborhood farther from a city center.

鈥淧eople may be looking to buy a house in a really nice town in the best part of that town,鈥� he said. 鈥淩ates go up so they can鈥檛 afford that, so they need to recalibrate what they are going to buy.鈥�

Editor鈥檚 note: Casey reported from Boston. Veiga reported from Los Angeles. AP reporter Jesse Bedayn contributed to this report from Denver.