TAMPA, Fla. (WFLA) — Starting April 1, the Federal Housing Finance Agency increased the upfront fees for loans to buy second homes. The increased fees were announced in January. Real estate company Redfin said the higher fees discouraged purchases, which may help cool off the market amid an ongoing housing shortage.

The FHFA announced in January that the fees were specifically designed to “minimize market and pipeline disruption.”

“These targeted pricing changes will allow the Enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” Acting Director Sandra L. Thompson said on Jan. 5. “Today’s action represents another step FHFA is taking to strengthen the Enterprises’ safety and soundness and to ensure access to credit for first-time home buyers and low- and moderate-income borrowers.”

Now, Redfin reports demand for second homes and vacation homes are falling, which they call an early sign of the market calming down. The real estate company said the increased mortgage rates, which are now approaching 5% for 30-year-fixed-rate mortgages, and the increased fees for second home loans, are adding to the slowdown for buyers.

“The pandemic-driven surge in sales of vacation homes is coming to an end as mortgage rates rise at their fastest pace in history, causing some second-home buyers to back off,” Redfin Deputy Chief Economist Taylor Marr said. “When rates and prices shoot up so much that a vacation home starts to look more like a burden than a good investment and a fun place to bring your family on the weekends, a lot of prospective buyers have second thoughts.”

While the demand for secondary homes decreased, Redfin said “demand for primary residences outpaced that of second homes for the second month in a row.” However, they say it’s partly due to the decrease in those buying second homes, since “demand for primary residences” has been about the same since June 2020.

Recent increases in the interest rates set by the Federal Reserve have caused mortgage rates to rise. Redfin says its causing demand to decline “sharply” as workers return to the office instead of working remotely. The new fees this month for second home loans also added “about $13,500 to the cost of purchasing a $400,000 home,” making vacation-home buyers wait before pulling the trigger.

The housing market is a key concern for the Federal Reserve as they strategize how to fight off inflation’s impacts on the U.S. economy and average households. In March, Federal Reserve Board Governor Christopher J. Waller addressed the Alrov Institute and the Rutgers Center for Real estate, with real estate a main focus of discussion, following the first of now seven total rate increases planned for 2022.

“Real estate makes a sizable contribution to gross domestic product, from both housing investment and consumption spending on housing services, which is what renters and homeowners pay for the shelter and amenities provided by housing,” Waller said. “Real estate also matters for inflation. Housing services represent about 15 percent of the Personal Consumption Expenditure price index, and it represents an even larger share of another well-known inflation yardstick, the Consumer Price Index.”

During his speech at Alrov, Waller noted that rent is a “significant share of monthly expenses for many households,” but particularly lower-income, who spend a larger portion of their monthly budgets on housing. He said rising rental rates are hitting these low-income households harder across the U.S., as inflation pushes prices on everything upward.

Additionally, the higher mortgage rates are making monthly costs for homebuyers go up sometimes as high as an extra $500 per month, according to Redfin. They say the increasing rates are “driving a sense of urgency to buy before” they go up again, causing potential buyers to back off as their budgets are “exceeded.”

As the housing market remains strained, Daryl Fairweather, Redfin’s Chief Economist, says it may not be all bad.

“Homebuyers may not feel like the market has gotten any easier. That’s because they’re often competing against investors, all-cash buyers and migrants from expensive cities who aren’t as sensitive to mortgage rates,” Fairweather said. “But there are early indicators that the market is turning, and we expect the softening to become more apparent in the coming weeks, eventually causing home-price growth to slow.”

In the meantime, the current federal mortgage rate reported by Freddie Mac, a government-backed mortgage institution, was 4.72%.

The rates on their site are updated every Thursday. On April 12, the latest Consumer Price Index, tracking inflation across the U.S., will come out, giving an indication on exactly how much prices have increased over the past month for consumer goods and expenses.