The pandemic housing rally is getting its first big test.

Mortgage rates rose in each of the past three weeks, driven by a bet that inflation will accelerate as the U.S. economy roars back this year. While borrowing costs are still near historic lows, the quick jump has already begun eroding the purchasing power that enabled buyers to push up home prices across the country in recent months.

The bidding frenzy has been one of the big surprises of the pandemic. When lockdowns lifted, buyers — armed with low mortgage rates — emerged with a newfound urgency to acquire properties with enough room for home offices and Zoom school.

Intensifying the competition for a tight supply of listings was a dramatic shift as millennials, who’d spent years renting in urban centers, came into prime home-buying age. The question now is whether the market can stay hot as rates creep up.

“The reasons why people are trying to buy homes right now go beyond mortgage rates,” said Danielle Hale, the chief economist at Realtor.com. “I don’t think demand is going to go away, but it’s going to create yet another hurdle as people navigate how to get into the market — particularly for younger, first-time buyers.”

Last week, the average rate for a 30-year fixed mortgage climbed above 3% for the first time since July, according to Freddie Mac. That’s up from the record low of 2.65%, reached in early January.

Even small changes in interest rates can have a big impact for buyers. In a report this week, Redfin calculated that an increase in mortgage rates to 3.25% from 2.75% would mean that a borrower on a $2,500-a-month housing budget would lose $23,250 in purchasing power.

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At the higher rate, about 68% of homes would be affordable for the buyer across the U.S., according to Redfin’s analysis, which looked at homes for sale between Jan. 26 and Feb. 25. That compares with about 70% at the lower mortgage rate.

Even bigger impacts would hit buyers in Denver and Sacramento, California, where the share of homes affordable on that budget would decline by 3.7 percentage points.

For now, though, rising borrowing costs don’t appear to be driving a wholesale exodus from the market. Purchase activity has cooled some in recent weeks but is still on par with levels seen a year ago, before the pandemic, Freddie Mac said last week.

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In the Denver area, Carlos Gomez and his girlfriend, Angela Davies, were initially surprised to learn they could afford a $450,000 house and still stay within their monthly budget, thanks to rock-bottom borrowing costs.

Now that rates are rising, they may be forced to look at a lower price point, where there are even fewer available properties, Gomez said.

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“It’s going to knock us out of the game,” said Gomez, adding they had already lost out on two houses to all-cash buyers.

For Tammy White, a teacher in Sacramento, the timing couldn’t be worse. She’s been cleaning up her credit over the past year so she could qualify for a mortgage and buy a home. Now, she’s concerned that higher loan costs will lock her out of the market because she’s unwilling to take on an obligation that will prevent her from affording activities for her daughter.

“If it goes above what I can comfortably afford and take care of a very busy 5-year-old, I’m going to have to pull out,” White said. “I’m not going to overbid on these homes, where I come upside-down on a loan. I’m trying to be smart about it.”

Even with some buyers more restrained on what they can pay, home prices are still likely to rise at a brisk pace, because of the underlying demand and tight supply, said Matt Speakman, an economist at Zillow. Still, buyers are going to have to get used to paying more for mortgages going forward.

“It sure looks like the days of all-time low rates are behind us,” Speakman said. “Broadly, pressure on rates will continue to be upward as the economy continues to improve.