Due to ever-increasing mortgage rates, the housing recovery is going to take a hit in the near future. According to Mark Hanson, a well-known mortgage analyst in California who predicted many aspects of the mortgage crash, he is predicting a 19% jump in contract cancellations for homebuilders for sales made between December 2012 and June 2013. This is because 70% of those homes were not built yet and did not have rates locked down.

In the past month mortgage applications have dropped as well as applications to purchase homes by a staggering 28%. That is only an increase of 4.5% from a year ago, which is well below expected, given that prices and demand are rising at an extremely fast rate.

Mortgage rates are climbing from 3.5% to 5%, which is equal to 15-20% less than what the average buyer can afford. According to a survey by Trulia, an online real estate company, 56% of consumers surveyed said they would be discouraged from buying if rates reach 6%. The problem is that, when rates jump, so do home prices and, with a lack of “for sale” listings, buyers are forced to bid up prices.