Portland Mortgage Market Update — May 23, 2025

This week was… not great. There were no real market-moving reports being dropped this week, which allowed for some general introspection on the market. And when traders took a step back and looked into the general health of the US economy they didn't really like what they saw. The deficit is growing by leaps and bounds and as the deficit grows, the government issues bonds to cover their spending. The problem is a large chunk of bonds were written during COVID when rates were at historical lows. Those bonds are set to come due starting in Augus, which means they would be refinanced at current rate levels. The increase in interest payments could send the US into default, which is why Moody's downgraded the US credit rating over the weekend.

So, are rates going to improve? This is the Billion Dollar Question that I get asked by clients and realtors alike. Lenders have been forecasting/expecting rates to drop "in the next 6-8 months" for the past 2 years, but that timeline keeps getting pushed out. I do think that the upcoming debt-apocalypse in August will be the impetus that forces rates to improve, simply because of how catastrophic it would be for the US as a global economic power. Plus, Trump wants rates to drop. He ran on a policy that focused on balancing the budget, creating more wealth for Americans and more equitable trade. To date, he has been working towards this goal primarily with Tariffs and DOGE, but behind the scenes Treasury Secretary Scott Bessent has been working on deregulation in the financial sector which would allow banks to leverage more and buy more US Treasuries. Adding investors with bigger wallets to the treasury auctions means more demand making yields go down. Lower yields=lower rates. Trump has also publicly criticized the Fed for being "too late" (he literally called Fed Chai Powell "Too Late Powell") in reacting to market climate, which is a fair assertion given this current Fed's track record. Bottom line, logically rates should drop and should drop between now and August. That being said, it seems like the big moves coming out of the white house (Tariffs, the Big Beautiful Bill) seem to be acting in contrast to what the administration's goals are and could be potentially driving us into a recession or worse.

Paradoxically, a recession might be just what we need. It feels terrible to say, but a recession could solve almost all these problems. Generally speaking, a recession causes:

• Inflation to drop • Treasury yields to drop • The Fed to cut rates • Oil prices to drop

Combining all these factors could be the reboot of the US economy needs to correct our trajectory. And we know from history that recessions are generally short-lived.