Your Guide to Bargain Hunting With Mortgage Rates Above 7%

Mortgage rates remain stuck above 7% as markets brace for more inflation-fighting rate hikes from the Federal Reserve. Meanwhile, a bond-market sell-off this week added fuel to the fire.

The average rate on a 30-year fixed-rate mortgage rose 10 basis points to 7.12% APR in the week ending Sept. 24, according to rates provided to NerdWallet by Zillow. (A basis point is one one-hundredth of a percentage point.) We calculate our weekly average using daily APRs recorded over the past five business days.

But how much and how quickly should the Fed intervene? That’s one of several inflation questions making the bond market jumpy this week. On Thursday morning, the 10-year Treasury yield, a key benchmark for mortgage rates, reached its highest level (again) since 2007.

Inflation isn’t going anywhere anytime soon, and it affects everything from gas prices to groceries. When ground beef gets uncomfortably expensive, savvy shoppers rethink the dinner menu. (Pizza beans, anyone?) When mortgage rates rise, rethinking your homebuying plan isn’t as simple — but it’s still possible.

A recent study from Realtor.com looked at mortgage rate swings since 2000 and came up with a simple budgeting rule: The farther away your purchase, the more wiggle room you’ll need.

Within three months, plan for a half-point swing. At six months, make it three-quarters of a point. A year out, give yourself a full percentage point of breathing room. According to its analysis, these figures will keep you on budget about 80% of the time.

Of course, rates could swing in either direction — but for planning purposes, run the numbers for the higher-cost scenario. So if rates are around 7% today and you hope to buy next year, make sure a payment at 8% still works.

Sure, mortgage rates might be higher than they were earlier this year — but fall buyers have advantages that spring and summer buyers don’t.

Data from the National Association of Realtors shows the typical home is about 5% less expensive in October and November than in June. As the market slows, fewer competing buyers and longer time on the market can give you more room to negotiate. Sellers who list later in the year may also be motivated to close before the holidays.

Focus on the leverage you have instead of wishing for the conditions you don’t. It’s like shopping at the farmers market: In late September, most places have pumpkins, not strawberries. Buyers rarely get every advantage at once.

You can’t haggle over a box of cereal at the checkout counter. But when a home has been sitting on the market, you may have room to make a deal. NAR’s latest existing home sales report showed a 4.9-month supply of homes for sale in August, the highest level in more than 10 years. That shift gives buyers better opportunities to negotiate — but only if you know what to ask for.

In a slower fall market, work with your real estate agent to determine which seller concession would help you most. A lower price can shrink your monthly payment for good. Seller-paid closing costs can leave more cash in your pocket for moving and repairs.

The best ask depends on your budget and the conditions of your local market. Focus on the concession that makes buying this particular house work for you.

Watching the Fed can offer clues about where mortgage rates might go next. Markets currently see almost a 70% chance of a quarter-point hike at the Fed’s Oct. 27-28 meeting, according to CME FedWatch. By December, the odds of another hike — either 25 or 50 basis points — rise to more than 94%.

Rate hikes aren’t necessarily a bad thing. While expectations for a Fed rate hike can keep mortgage rates elevated, the hike itself is intended to slow inflation. That could help your budget sooner than later, and eventually bring mortgage rates back down.

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