Record-high home prices and rising mortgage interest rates are putting downward pressure on the housing market as the total number of applications for new mortgages fell 6.3% last week.

In the Mortgage Bankers Association’s (MBA) seasonally adjusted mortgage index released on Wednesday, applications for mortgages dropped owing to rising rates and high home prices.

Applications to refinance a mortgage, considered the most sensitive to interest-rate changes, fell 7%. This week’s number is 22% lower than the same time last year.

The U.S. housing market has been saddled with a supply-and-demand dilemma since the start of the COVID-19 pandemic with too little inventory available to meet a ravenous demand.

The pandemic has exacerbated much of this situation, though it is not completely responsible. As the virus spread across the world, it resulted in factory shutdowns as well as closures at shipping yards and other nodes in the global supply chain. This has pushed the price for building material upward, contributing to higher home prices and slower building rates.

The labor shortage is also in play. Construction firms are grappling with vacancies that they have proven incapable of filling sufficiently, a trend that was emerging even before the pandemic began in force. This is another factor that has resulted in higher home prices.

Sentiment in the homebuilding market is currently optimistic because homes are selling for higher values, but this is riddled with caveats. For any glee over housing prices, there are also enduring concerns about whether the lack of affordable housing will ease any time soon as many first-time buyers put off purchases.

Further changes in interest rates are also looming over the horizon as the Federal Reserve is set to meet on Nov. 2. The Fed has been signaling that it is ready to cut back on its monthly multibillion-dollar asset purchasing program to curb inflation, but it has discouraged the idea that it will be raising interest rates by the end of 2021.