Home prices are continuing to rocket higher. According to the S&P Dow Jones 20-city home price index, the rate of year-over-year appreciation climbed to 12.3% in July compared to the same month last year.

But signs of concern are starting to emerge.

"Since April 2013, all 20 cities are up month to month; however, the monthly rates of price gains have declined," said David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices. "More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked."

A recent surge in mortgage rates is acting as the primary headwind in the industry. Over the last few months, the rate on a 30-year fixed rate mortgage has shot up by more than 100 basis points, from below 3.4% in early May to roughly 4.5% today.

"Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing," Blitzer noted. "The Fed's announcement last week that QE3 bond buying will continue for the time being may have only a limited, though favorable, impact on housing."

We've started to see these trends make their way through to the mortgage market.

At a conference earlier this month, the chief financial officer of Wells Fargo (NYSE:WFC), the nation's largest mortgage originator, announced that the bank's home loan volume is expected to fall to approximately $80 billion in the third quarter, a decline of more than 20% from the previous seven quarters.

And the CFO at JPMorgan Chase (NYSE:JPM) affirmed this prediction, saying "the volume reduction will be 35% flat."

This has resulted in widespread layoffs throughout the industry.

In August, Bank of America (NYSE:BAC) laid off 2,100 employees in its mortgage department. Wells Fargo has cut an estimated 3,000 positions since July. JPMorgan most recently said that it's eliminating 440 jobs in Columbus, Ohio. And it was reported yesterday that Citigroup (NYSE:C) will be laying off 1,000 mortgage jobs in Nevada and Texas, citing a "decreased demand for home loans and mortgage refinancing."

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.