NEW YORK (MainStreet) — "Under contract" became a too familiar sign for Erin Thornton, a 28-year-old nurse who spent most of the spring looking to buy a single family home in a downtown Denver, Colo.

"I was looking to move in June when the interest rates were low, but every house I looked at went under contract, so I couldn't even get a place," said Thornton, who is still looking to buy a home in the Mile High City. "But, I guess the cost has changed though."

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Housing markets in the more costly areas of the U.S. that paved the way for the early half of the housing recovery are starting to feel the pinch of higher mortgage interest rates after a buying frenzy earlier this year.

Thornton's experience is similar to many homebuyers in hot housing markets, such as Denver, San Francisco, Seattle, San Diego, and Miami, where higher interest rates are impacting urban markets with tight inventories.

"Affordability conditions remain favorable in most of the country, and we're still dealing with a large pent-up demand," said Lawrence Yun, chief economist for the National Realtors Association in Washington, D.C. "However, higher mortgage interest rates will bite into high-cost regions."

Inventory conditions continue to favor sellers and contribute to above-normal price growth, said Yun.

The primary housing markets affected by tight markets and increased appreciation values are located in the West, where the market holds a supply imbalance as well as urban coastal areas with highly concentrated populations, according to Seattle-based real estate research site

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"In San Francisco, we're facing an 11% appreciation value, and if you a pay a higher interest rate, then that's a recipe for lack affordability," said Svenja Gudell, a senior economist at

A typical household in the San Francisco area that contributes 38% of their monthly income toward a mortgage will now be squeezed to 42% with a 5% interest rate, she said.

The Seattle-based real estate site identified half a dozen of metro areas where homebuyers can expect to pay than historic norms -- especially if interest rates hit the 5% mark. Topping the list is San Jose; expected to be 22% more expensive, followed by Los Angeles at 19%, San Diego at 14%, San Francisco at 11%, Portland, Ore. and Denver at 1%.

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"Denver is the most expensive it has even been," Gudell said.

Most of the market is shifting quickly in and around Denver, but the recent adjustments in interest rates are starting to impact properties in the $250,000 and $400,000 price range, said Kristine Holvick, a realtor at Re/Max Alliance Central.

"As the interest rates have gone up a whole percentage point, buyers are now being a lot more picky," Holvick said in comparison to the tide of buyers purchasing home several months earlier. "It was so crazy before, but I'm not seeing that now."

Holvick remarked the demographic of homebuyers around the downtown Denver and close-to-city areas has changed with the prick of the local housing bubble.

"Last summer most of market were investors and they have just really pulled backed," she said although the market remains strong with individual buyers. "I think people see that that the low interest rate aren't going to last since the Fed has indicated that it's going to pull back.

A disproportionate number of homebuyers in the more expensive urban areas that led the housing recovery were investors who have scaled backed a bit when the interest rates increased, said Ryan Severino, a senior economist at real estate research group Reis, Inc.

"It's going to impact the investments buyers, it's not going to deter those who are buying their started home -- the impact is primarily on investors," said Severino who added many of the investors from hedge funds and mutual funds started to pull out of real estate investments after the Fed's dovish comments on quantitative easing.

The increase in mortgage rates, which has reached its highest level in two years at 4.74% for a 30-year fixed rate mortgage, is a catalyst for many prospective homebuyers to close before rates spiral upwards, real estate experts say.

"The initial rise in interest rats provided strong incentive for closing deals," said Yun, NAR chief economist said. "However, further rate increases will diminish the pool of eligible buyers."

Thornton, who suspended her home buying search during the summer months, plans to renew her home buying search in September or October when her lease to her Uptown apartment is finished.

"I'm going to start looking in a month from now and when I have been looking the interest rate has been around 4.5%," she said with undertones of frustration. "I guess if it goes over 5 or 5.5%, then I'm not going to do it."

--Written by Farran Powell for MainStreet