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Despite 7% Mortgage Rates, There’s a Silver Lining for Buyers

The supply of homes will likely stay limited until rates fall back to 5%. For now, buyers at least face less competition.


A 5% mortgage rate is the target rate to unlock the housing market. But it’ll be a while before we get to that level. 

A recent survey from Zillow shows that homeowners are twice as likely to sell their houses if their existing mortgage rate is over 5%. The catch, however, is that 80% of homeowners report having rates below 5%. This lopsided statistic has influenced housing supply as many homeowners are reluctant to sell their homes and trade in their low mortgage rate in exchange for a higher monthly payment -- a phenomenon known as the “rate-lock effect.”

That limited inventory is putting an upward pressure on home prices, compounding the affordability crisis for prospective buyers. Until mortgage rates inch closer to 5% -- they’re currently averaging around 7% -- the majority of sellers will remain on the sidelines. 

While these obstacles have certainly tempered homebuying demand, it’s not impossible to purchase a house in today’s market. In fact, there may even be a silver lining. 

“Everybody would prefer if rates were lower,” said Jennifer Beeston, senior vice president at Guaranteed Rate, a national mortgage lender. “However, most buyers recognize that rates are higher, and that’s actually giving them a chance of getting into a home because of a lack of competition.”

Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.

About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.

What’s behind today’s high mortgage rates?

During the pandemic, mortgage rates were historically low. That’s because the Federal Reserve, fearing a prolonged recession, pumped money into the economy to stimulate growth and cut its key interest rate -- the federal funds rate -- to nearly 0%. Mortgage rates, which are loosely tied to the Fed’s benchmark federal funds rate, plunged below 3% in early 2021.

However, the economy bounced back quickly and the Fed was left with another problem -- one it’s still dealing with today -- inflation. Throughout 2022, inflation skyrocketed, peaking at 9.1% in June, and the Fed began aggressively hiking the federal funds rate in an effort to rein it in. Mortgage rates surged in response.

While inflation has been slowly cooling, mortgage rates remain stubbornly high, leaving many homeowners handcuffed to the low rates they locked in prior to last year’s rapid increase in rates. 

“If someone has a 2% or 3% mortgage rate, it’s really tough to go from that 3% payment on a $400,000 loan to a 6.5% or 7% payment,” Beeston said. “It’s not a small difference, you’re literally doubling your mortgage,” she added.

Until inflation finds its way down to 2% and holds steady for several months, the Fed is unlikely to begin cutting interest rates. It’s even harder to predict how long it will take for mortgage rates to hit 5%, but it’s not likely to happen in 2023. For instance, Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year at 6.7%.

How buyers can approach a difficult housing market 

Higher mortgage rates mean it’s more difficult to afford a home now. But on the flip side, the reduced housing demand also means less competition. That gives buyers the opportunity to get a home for potentially less than list price or have sellers contribute toward closing costs. Once rates come closer to 5%, we’re likely to see a highly competitive housing market as both buyers and sellers get off the sidelines.

“This is a great market for buyers who didn’t have a chance in 2020 or 2021 when people were paying in cash or paying above asking,” Beeston said. Plus, you can always refinance down the road when rates drop, she added. 

If your goal is to become a homeowner, here are some tips for approaching today’s housing market. 

Consider buying mortgage points

One tool many homebuyers are using to make today’s high rates more affordable is a mortgage-rate buy-down. Buying mortgage points, or discount points, lets you pay money upfront to your mortgage lender in turn for lowering your interest rate. 

Each point will cost 1% of your total mortgage amount and will reduce your interest rate by 0.25%. To lower your rate by a whole percentage point, you’d need to purchase four mortgage points. 

If you can afford the upfront costs and plan to stay in the house for a long time, it’s worth considering purchasing discount points to save you money in interest paid over the long run. But the added expense could take away from your down payment or additional costs to put into your new home. If you need that money to go elsewhere, discount points might not work for you. 

Pro tip: If a seller isn’t willing to budge on the asking price, see if they’ll accept a mortgage rate buy-down using points. 

Shop around for different lenders

It’s always a good idea to shop around for mortgage lenders to see who can offer you the best rate, but especially so in an elevated rate environment.

Remember, the average rate may be far different from the one you qualify for. Building your credit score can help you get a better rate -- potentially better than the average. Doing things like paying down high interest debt can also make a difference.

Buy what you can afford

Regardless of the interest rate, what matters is that you can afford your monthly payments. It’s important to have a clear budget and to work within it. In many cases, a lender may pre-approve you for more than you need or would be wise to spend. It may be tempting to browse homes that are way outside your budget, but it won’t help you in the long run. 

Before you start touring houses, figure out how much house you can realistically afford.

Katherine Watt is a CNET Money writer focusing on mortgages, home equity and banking. She previously wrote about personal finance for NextAdvisor. Based in New York, Katherine graduated summa cum laude from Colgate University with a bachelor's degree in English literature.