Guide to rising mortgage rates for buyers, sellers and downsizers

And some builders are offering innovative financing to take some of the sting out of mortgage rates. “They have cut prices, and they do mortgage buy-downs,” says economist Bill McBride. In a

typical buy-down, for example, the builders temporarily reduce the mortgage rate to 4 percent for the first year, then 5 percent the next year, and 6 percent for the third year. After

that, the rate jumps to the market rate, around 7 percent, for the duration of the loan. “The pitch is always, ‘Oh, I bet you the interest rates are going to fall so you’ll be able to

refi,’ ” McBride says. Buyers can also pay “points,” essentially an upfront fee, directly to a lender in exchange for a slightly lower mortgage rate. The investment in points can pay off

over time if you hold the original mortgage for several years. Paying points to lower a mortgage rate is less attractive if you plan to sell or refinance quickly. Don’t cry for the

builders. They don’t have to compete with dirt-cheap existing homes, as they did in the Great Recession of 2007 to 2009. “The guys I’ve talked to, they’re doing fine,” McBride says. Costs

for materials have fallen after spiking early in the pandemic. Lumber, for example, is down about 43 percent from its high in May 2021. Builders also make a good profit from their design

centers as well as upgrades, he adds. TIPS FOR SELLERS “We have the largest generation in history in their prime buying years right now,” says McBride of millennials, which have surpassed

boomers as the largest generational cohort. “They’re getting married, having kids and buying homes.” That’s good news. Another bit of good news: Inventory is low, meaning that if you’re

living in a highly desirable neighborhood, you may be the only house for sale in town. Low inventory gives sellers more control in pricing. “What’s happening is that people have opted for a

new home wholly because they cannot find an existing home,” Lonski says. The bad news is that millennials are buying later in life than boomers did. The average age of a first-time home

buyer is 36, the oldest on record. And, given that the median home price in the U.S. (half higher, half lower) is $412,300, millennials tend to be fussier as first-time buyers than boomers

were. They don’t want to take on the added cost of a new roof or a major kitchen remodel alongside a big mortgage payment.  In some red-hot real estate markets, sellers are still getting

multiple bids and bidding wars. But that’s slowing down, and in some markets, sellers are having to cut prices to compensate for dated appliances or bathrooms that haven’t been updated since

the Eisenhower administration. If you want to get a quick sale, be flexible on price or be willing to give concessions for outdated appliances or decor. Also consider making modest

improvements that pay off at resale, such as fresh paint, upgraded flooring or exterior updates. Just aim to pay for the improvements with cash on hand, if you can, instead of borrowing

against the equity in your home. Otherwise you’ll get hit with high rates on a cash-out refinance or home equity loan, which have gone up alongside traditional mortgage rates.