While mortgage rates are often mentioned in tandem with the demand for homes, it goes relatively unappreciated how high borrowing rates directly impact the amount of house homebuyers can afford. With 30-year fixed rate mortgages trending over 7%, hopeful homeowners are forced to settle for smaller properties or exit the market all together.

Housing veterans may be quick to recall the elevated 10% to 15% mortgage rates of days past as an argument against the elevated state of housing prices. However, this fails to consider that homes didn’t cost seven times the median income level when rates were that high.

The simple fact is real estate prices have far outpaced wage growth over the past decade. In the last ten years, homes have risen in value more than 30% while wages have grown only around 10%. As such, even mortgage rates aside, the cost of purchasing a home has never been higher.

However, perhaps even more startling than home prices themselves for many would-be homebuyers are mortgage rates. These remain the single biggest determining factor for households looking to purchase a home. The 30-year fixed-rate mortgage is currently trending at about 7%, up from the pre-pandemic 2% rate at the start of the year. Not only is this leaps and bounds higher than most economists predicted, it’s the highest level since 2006.

The housing market is clearly in one of its tightest states since the Great Recession. What does this mean for homebuyers entering a mortgage today?

7% Mortgage Rate Adds Nearly $1,100 to Monthly Payment

For those currently entering the housing market, the unfortunate truth is that until an opportunity to refinance comes along, you’ll have to settle for sky-high monthly payments.

Using an average house sale price of $525,000, a standard 20% down payment and a now-conservative 6.7% interest rate, homebuyers are paying an extra $1,158 every month compared to 2021’s 2% interest rate. Over the lifetime of a mortgage, this adds up $555,000 in interest payments alone, a more than $400,000 premium over those who received a 2% loan.

Obviously, many Americans will refinance their mortgages at least once over the term of their loan. Mortgage rates are also susceptible to things like credit scores and income, but the difference is clear: those entering a housing loan this year face a substantially heftier financial burden compared to years prior.

Adding to the issue is the size of houses in the modern market. The notion of a “starter house,” or a small, entry level home for new families, has all but disappeared. Home builders, for the better part of the last decade, have shown a deliberate preference for large, mansion-esque super homes over more modest alternatives. This was likely much of the reason why home prices have climbed so much in recent years.

Less Home Per Dollar, More Home Per Year

In the 1950s, a typical “starter home” was 983 square feet and popular among young adults with families. Based on the average price per square foot, these homes cost about $114,028 when adjusted for inflation. In 2022, things are a bit different. Homebuyers are older, families are smaller and houses are bigger and more expensive than ever before.

Indeed, nowadays new houses are about 2,500 square feet on average, more than double their 1950 equivalent — and more than four times the cost. The median home value in 2022 is $433,100, which, at a glance, may seem like it substantially outpaced the growth in the size of homes. Not so. When you account for inflation, the price per square foot for new U.S. houses has been basically flat since the 1970s, hovering between $107 and $128 per square foot. This indicates home prices are higher largely as a consequence of the fact that in 2022, homes are just bigger.

As such, when you add in the effect of elevated mortgage rates on already sky-high house prices, it’s clear homebuyers are losing quite a bit of property. The question remains: just how much less home can homebuyers expect to get given the current state of the housing market?

Elevated Mortgage Rates Are Killing Home Budgets

A recent Redfin analysis shows the median-size home affordable to those with a $3,000 monthly housing budget has fallen by more than 100 square feet in most regional housing markets. This effectively means those who could afford a three-bedroom home in 2021 are now only qualified for a two-bedroom home in the same area.

In some markets, homebuyers are losing much more space as a consequence of current lending rates. A San Diego homebuyer would’ve lost 435 square feet by opting to wait until now to buy, compared to a year prior. Currently a $3,000 monthly budget will get you less than 1,000 square feet in six major metros. In 2021, this was only the case in San Francisco.

Sheharyar Bokhari, Redfin Senior Economist, commented on the detrimental effects elevated mortgage rates are wreaking on potential homebuyers’ budgets:

“Soaring mortgage rates are throwing a wrench into prospective buyers’ plans. Many would-be buyers are dropping out of the market because they can no longer afford the home they want, resulting in a dramatic dip in home sales. For buyers who need a home right now – and can still afford it – compromise is the name of the game. Some buyers will choose to sacrifice on location or move further away from the city center so they can get the space they want, while others will settle on a smaller home in their ideal location.”

Clearly, mortgage rates are having an injurious effect on home buying mobility. With that said, there are some silver linings. As high mortgage rates push many would-be buyers out of the market, home prices should see some relief. Whether that results in homebuyers gaining some much sought-after square feet remains to be seen.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.