(Bloomberg) -- US mortgage rates posted the biggest drop in more than two years, offering homebuyers a slight reprieve from this year’s massive surge in borrowing costs.

The average for a 30-year loan declined to 5.10% from 5.25% last week, Freddie Mac said in a statement Thursday. That was the biggest decline since April 2020, but rates are still well above the 3.11% level at the end of last year.

While rates fell this week, their rapid rise over the past four months has started to take a toll on demand. New home sales, measuring signed contracts, dropped to the lowest level since the start of the pandemic lockdowns, according to government data released this week. Existing home transactions are also falling.

The Federal Reserve is raising interest rates to combat inflation, raising affordability concerns for buyers who are struggling to find properties. The median mortgage payment for new purchase applications in April was up 8.8% from a month earlier due to higher rates and rising home prices, according to Mortgage Bankers Association data released Thursday. 

“Mortgage rates decreased for the second week in a row due to multiple headwinds that the economy is facing,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods.”

At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,628 a month, roughly $346 more than at the end of last year.

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