Mortgage rates hit their highest point since November 2008 this week, crushing homebuyer demand.

The rate on the 30-year fixed mortgage jumped to 5.89% from 5.66% the week prior, according to Freddie Mac. Rates have surged nearly three-quarters of a point in just three weeks and are now over 2.5 percentage points higher than the start of this year.

Elevated borrowing costs and inventory shortages have pushed inflation-struck homebuyers to the sidelines, while those who remain in the market are no longer rushing to make a bid, forcing sellers to reassess their pricing expectations.

"Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy to combat elevated inflation," Sam Khater, Freddie Mac's chief economist, said in a news statement.

Homebuyers wait out further home price drops

Demand for mortgages remained at a 22-year low by the end of August, according to the Mortgage Bankers Association’s survey for the week ending September 2, as purchase and refinance activity continued to plummet. Purchase activity has declined in nine of the last 10 weeks, down 23% from the same week a year earlier.

“Homebuyers may be incentivized to remain on the sidelines anticipating home price declines, contributing to a further cooling in home sales through the end of the year,” Doug Duncan, Fannie Mae’s chief economist, said in a statement.

Signs of softening home prices are also popping up.

The median home price fell to $435,000 in August, according to Realtor.com, down from $449,000 last month and June’s record high of $450,000. And the share of folks who believe home prices will fall within the next 12 months increased to 33% in August, according to a new Fannie Mae housing sentiment survey, up from 30% the month prior.

Still, home prices remain 39.6% higher than in August 2019. With rates hovering around 5.50%, the median monthly payment on the typical home is over $2,000, or about 61% more than last year.