U.S. mortgage rates for 30-year loans rose to a two-year high, increasing borrowing costs amid signs of an improving job market. This came on speculation that the Federal Reserve would soon reduce its bond purchase program after ta bullish June jobs report.

It wasn’t just the job gains that drove rates higher. Hourly wages also rose 2.2 percent over the past 12 months, the largest annual increase in nearly two years, according to Frank Nothaft, Freddie’s chief economist.

The average rate for a 30-year fixed mortgage climbed to 4.51 percent, the highest since July 2011, from 4.29 percent last week, McLean, Virginia-based Federal Home Loan Mortgage Corp (OTCBB:FMCC) said in a statement today. The average 15-year rate increased to 3.53 percent from 3.39 percent.

mortgage ratesThe 30-year rate, which climbed from a near-record low of 3.35 percent in early May, has risen on expectations that the Federal Reserve will reduce bond purchases as the economy returns to health. Improving employment is bringing more buyers into the market as competition over a tight supply of listings drives up prices. Payrolls rose by 195,000 workers in June, the Labor Department reported on July 5, exceeding the 165,000 gain projected by economists in a Bloomberg survey.

Mortgage Rates Cause Housing Affordability to Deteriorate Slightly

The rate increases signal trouble for house hunters, however. A survey by online real estate company Trulia found that an increase in mortgage rates was the number one worry among 41 percent of consumers, even ahead of price increases.

“Housing affordability has deteriorated slightly in response to the rise in mortgage interest rates, but remains considerably better than the historical average,” Paul Diggle , property economist at Capital Economics Ltd. in London, wrote in a research note yesterday. “With price gains still going strong, there are few signs that the rise in rates will derail the housing recovery.”

U.S. home prices rose 12.2 percent in May from a year earlier, the largest increase since February 2006, according to Irvine, California-based CoreLogic Inc.

Rates have risen more than a percentage point since early May, from 3.35 percent to 4.5 percent. That has added about $65 to monthly mortgage bills for every $100,000 a homeowner borrows. Combined with the 12.2 percent over the past 12 months, mortgage payments have gone up by about 25% for a typical homebuyer.

Rising Mortgage Rates are Slowing Refinancing

While housing demand remains strong, the rising rates are slowing refinancing. The share of mortgage applicants seeking to refinance was 64 percent last week, the lowest since May 2011, the Mortgage Bankers Association  said yesterday.

Lenders have had to re-evaluate borrowers pre-approved for loans a few months ago because of the higher rates, which can decrease purchasing power, Joe D’Alessio, a loan officer at HSBC Holdings plc (NYSE:HBC) (LON:HSBA) in New York, said yesterday in a telephone interview to Bloomberg. Rising financing costs have yet to slow the momentum of the housing recovery, he said.

“The market hasn’t really caught up with the rates,” D’Alessio said. “There’s still very low inventory, so sellers aren’t really reducing purchase prices.”

The 30-year rate is still well below the average of about 5.3 percent for the past 10 years, according to data  compiled by Bloomberg.