Federal Reserve Chairman Jerome Powell told Congress on Tuesday that more aggressive interest rates may be needed to cool inflation.

While mortgage rates are separate from the Fed's short-term rates, they tend to follow the same trajectory. These higher rates have hit homebuyers where it hurts: their budgets.

In response to Powell's comments, mortgage rates on 30-year fixed-rate loans hit 7.03 per cent on Tuesday afternoon, according to Mortgage News Daily.

These higher rates are largely responsible for today's homebuyers paying more than 50 per cent more per month on their mortgages than they did a year ago.

"This is bad news for buyers who had hopes that rates would fall," said Danielle Hale, chief economist at Realtor.com®." It's going to be a more challenging spring than some had anticipated."

Less than two months ago, there was speculation that rates would drop below 6 per cent. Buyers have returned to the market and bidding wars are heating up again. However, higher interest rates could threaten the rebound.

"This will continue to put a damper on how much homebuyers can afford. Sellers will need to be aware of that," Hale said." There may be fewer buyers on the market, and those in the market may not be able to bid as high as they have in years past."

Even a one percentage point increase can add up to a lot of money over the life of a mortgage. For example, the difference between 6.03 per cent and 7.03 per cent equates to a $219 increase in monthly mortgage payments for a buyer of a median-priced home.

Over the life of a 30-year loan, this adds up to almost $79,000.

In the short term, Hale expects interest rates to rebound in the high range of 6 per cent to 7.5 per cent. She does not expect rates to exceed 8 per cent.

"It's going to be a more challenging spring than some people expect," Hale said.

However, there is a bright spot in the financial markets that could act as a damper on interest rates. When stocks are volatile or fall as they did on Tuesday, more investors are putting money into U.S. Treasuries and mortgage-backed securities (also known as mortgage bonds), which are considered safer investments. These securities are bundles of mortgages that lenders sell to investors to free up money to make new loans.

When there is more demand for mortgage bonds, as there was after Powell's comments on Tuesday, the price of the bonds rises. Then mortgage rates usually fall.

While higher rates may slow the market in the spring, they are not expected to bring it to a standstill.

"It could delay the recovery we've started to see in the housing market," Hale said." But I don't think things are going to get worse from here. It's just going to take longer to get the momentum behind that rebound."

The calculation uses the national median listing price in February 2023 versus February 2022, where buyers have made a 20 per cent down payment. It also takes into account the average mortgage rate on March 7, 2023 versus March 8, 2022, using 30-year fixed-rate loan data from Mortgage News Daily. It does not include property taxes, homeowner's insurance or other fees.