Last week mortgage rates went up, leaving homeowners little incentive to refinance. These higher rates have caused homebuyers to lose more buying power in a market already expensive.

Average contract interest rates for 30-year fixed rate mortgages (conforming loan balances of $554,250 or less), rose to 3.18% and 0.35 respectively. Points also increased from 0.35 to 0.37 for loans with 20% down payments. It is the highest rate this year since June. The rate of change has risen by 15 basis points over the month.

According to the seasonally adjusted index of the Mortgage Bankers Association, the volume of mortgage applications was basically flat last week as compared to the week before.

The week’s number of applications to refinance home loans dropped 1% and was 16% less than the previous week. Refinance activity has declined to 63.9% from 64.5% last week.

Last week’s drop in FHA refinances caused by an eight-basis-point rise in FHA mortgage interest rates and a decrease in FHA refinances, saw government applications for refinance fall over 3%. Joel Kan, an MBA economist said that we expect to see a decline in refinance activity due to higher rates and less incentive for borrowers.

The week saw an increase in mortgage applications for home purchases of 2%, but they were still 10% less than the previous week. Kan reports that there was a rise in conventional mortgage applications. This kept the average loan amount elevated. It also shows that most activity in the housing market is still at the upper end of the spectrum, and not the lower. Although supply is tighter at the lower end of the market, that’s where there is most demand. The result is that prices have been experiencing significant gains at the lowest end of their value.

This week mortgage rates rose, indicating that the market for mortgages could slow down in the future. With the housing market nearing its slowest season and buyers not being able to afford more, they may be forced to pull back.