Mortgage rates are expected to rise again after the Fed raised rates by 0.25% on Wednesday afternoon. That will hurt buyers who are struggling to cope with still-high home prices, mortgage rates already nearing 7 per cent and a lack of properties for sale. Sellers will also share in the pain as fewer buyers will be able to jump into the fray and pay top dollar for their homes.

The housing market has already started to thaw as mortgage rates have temporarily dropped to the low 6% level. But this expected rate hike could stop the momentum that has been building.

"With home prices and mortgage rates already pushing the edge of many shoppers' budgets, it's not surprising to see homebuyers react when interest rates fluctuate," said Danielle Hale, chief economist at Realtor.com®." When rates rise, we see signs that buyers are pulling back, but when rates fall, homebuyers seem to jump back into the market."

The Federal Reserve has been raising interest rates to curb high inflation, which includes grocery shoppers paying more than $5 for a dozen eggs and sticker shock from renters who have been battling double-digit rent increases. While mortgage rates are separate from the Federal Reserve's short-term rates, they have been moving in the same direction: up.

According to Mortgage News Daily, mortgage rates nationwide had risen to 6.7 per cent on Wednesday afternoon in anticipation of a Fed rate hike. That's the rate for a 30-year fixed-rate loan.

Even small fluctuations in these figures can impose significant costs on homebuyers. A buyer who can borrow $375,000 at a 6 per cent mortgage rate may only be able to get $338,000 at a 7 per cent rate. As a result, the size of their monthly payment expands.

The Fed news comes just before mortgage applications began to rise: according to the Mortgage Bankers Association, applications from homebuyers rose 17.5 per cent in the week ending March 17 compared to four weeks earlier. (However, applications are still down 36% compared to last year when the market was near its peak.)

Sales of existing homes are also surging, up 14.5% in February compared to January. Some of this is seasonal; sales are usually slower in the winter after the holidays, while in the spring buyers are usually at full strength. Sales for the year were down 22.4 per cent from a year ago.

"We're probably going to see a pickup in sales because people are out looking at homes, there's no more banking crisis and there's no spike in interest rates," said Keith Gumbinger, vice president of mortgage information site HSH.com.

He thinks prices may even rise a little this spring as competition for homes heats up.

"[But] I don't think we're going to be competitive with last year's numbers," he says.

While this may be little comfort to struggling buyers or sellers who have been hoping for a breather, the Fed's rate hike had been expected to be much larger after the sudden collapse of Silicon Valley Bank and Signature Bank. This could have a greater impact on mortgage rates.

And, if the Fed had not raised rates this month, it would have sounded the alarm that it was concerned about the health of the US banking system. That could trigger other economic problems.

"The Fed wants to be able to show that it is sensitive to inflation risks, but at the same time it recognises the pressures in the banking environment right now," Gumbinger said.

The upside is that the Fed's increase may help to curb inflation more quickly, "which means lower mortgage rates in the long run," says Realtor.com's Hale.

However, reaching this point may not be possible without a recession. If unemployment starts to increase, this could scare away potential homebuyers.

"The long-term outlook for housing would be better if the Fed controlled inflation," said Aaron Brown, a Bloomberg columnist and adjunct finance professor at New York University. However, "we're not through the pain yet."