Declining mortgage rates spurred the demand for home loans at the beginning of 2023, spreading optimism across the industry. But that’s not the only reason for the uptick. 

After months of a slowing housing market, sellers are offering more discounts to close deals and mortgage lenders are launching programs to protect their clients’ rates. 

“The fall in mortgage rates creates opportunities for many buyers, as a lower mortgage rate brings down the monthly payment,” Nadia Evangelou, National Association of Realtors senior economist and director of real estate research, said in a statement. “At the same time, data shows that sellers are more willing to negotiate as homes stay on the market longer.”

To illustrate, Evangelou noted that home sellers had to reduce their initial asking price by 12% on average for sold properties listed for more than 30 days. Meanwhile, price cuts reached 15% when properties stayed on the market for more than four months.

“In the meantime, there are fewer offers per listing. The typical seller receives a couple of offers for their home compared to four offers the previous year when buyers were rushing to benefit from the 3% historic low rates,” Evangelou said. 

Freddie Mac‘s latest report shows that the 30-year fixed mortgage rates were at 3.56% one year ago. After reaching the 7% level in September, rates dropped to 6.15% as of January 19. In one week, rates declined 18 basis points. 

According to Sam Khater, Freddie Mac’s chief economist, rates are declining as inflation moderates, improving homebuyer demand and homebuilder sentiment. 

“Declining rates are providing a much-needed boost to the housing market, but the supply of homes remains a persistent concern,” Khater said. 

Lender initiatives

Like the market overall, Offerpad Home Loans has also noticed an uptick in applications in the first two weeks of January. However, some borrowers are still reluctant to purchase homes since they believe that mortgage rates could go down even further. 

“Many prospective homebuyers believe mortgage rates will go down this year and are waiting to purchase their next home. But if rates do go down, the property market will heat up, prices will rise, and bidding wars could resume,” J.R. Samsing, vice president at Offerpad Home Loans, said.  

According to Samsing, “that’s why now may be the best time for buyers to take advantage of current market conditions. Growing inventory and greater leverage mean homebuyers can negotiate the best deal.” 

At Offerpad Home Loans, executives are rolling out an interest rate protection program, which guarantees that if mortgage rates drop, the lender will provide a refi with zero lender fees. The lender will also pay up to $500 for the appraisal if necessary. 

The lender said the program is valid for three years, but some loans cannot be refinanced for the first six months. Borrowers are subject to credit approval.