Mortgage Outlook for 2025

I used an AI to summarize the mortgage market and project for the rest of 2025 and it produced an interesting article which I will post here unedited after making some personal notations and insights the AI may have missed.

In the following AI article, it mentions tariffs as a possible cause for rate increases due to the inflation tariffs sometimes have on the market. In essence this is true, when tariffs are added to imported goods, those tariffs are passed on to consumers in many cases. But using interest rates to control inflation isn't about the cost of goods as much is it is about the amount of money in circulation. Over the last several years the US Government flooded the market with cash along with low interest rates created a hot market that led to hyper-inflation. Tariffs tend to slow the market down. As prices rise, demand lowers. Tariffs will often motivate buyers of goods to seek products made domestically or from countries not exposed to the tariffs. In the case of Tariffs on Chineses goods, the Chinese government has long been known to manipulate their currency to counter tariffs keeping pricing relatively cheap against its competitors worldwide. I therefore do not believe that tariffs will have a substantial impact on rates and it is more likely to lower rates than raise them. With all that stated, let's move on to the AI generated article below.

As of early February 2025, mortgage interest rates remain a focal point for prospective homeowners and investors. Over the past few years, rates have experienced significant fluctuations, influenced by various economic factors. Understanding the current landscape and future projections is crucial for making informed decisions in the housing market.

Current Mortgage Rate Landscape

In January 2025, the average rate for a 30-year fixed mortgage was approximately 7.11%. This rate has been a point of concern for many potential buyers, as it remains elevated compared to historical standards. Despite efforts by the Federal Reserve to reduce interest rates on loans and credit cards, mortgage rates have not seen a significant decline. This resistance is primarily due to their close correlation with the 10-year Treasury bond yields, which have remained high due to ongoing inflation concerns. 

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Factors Influencing Mortgage Rates

Several key factors contribute to the current mortgage rate environment:

1. Inflation Concerns: Persistent inflation has led investors to demand higher returns on bonds, directly impacting mortgage rates. Proposed policies, such as increased tariffs, could further exacerbate inflation, maintaining upward pressure on these rates. 

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2. Economic Policies: Government policies, especially those related to fiscal spending and trade, play a significant role. Expectations of increased government spending can fuel inflation, leading to higher mortgage rates as lenders adjust to anticipated economic conditions. 

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3. Market Sentiment: Investor confidence and market sentiment influence demand for mortgage-backed securities. High levels of economic uncertainty make investors cautious, leading them to seek higher returns, which in turn elevates mortgage rates. 

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Projections for 2025

Looking ahead, experts anticipate a gradual decline in mortgage rates throughout 2025, though rates are expected to remain above 6% for most of the year. Here are some projections:

• Early 2025: Rates are likely to hover between 6.5% and 6.8% as the Federal Reserve maintains a cautious approach to interest rate cuts.

• Mid-to-Late 2025: Mortgage rates could fall to the 6.0% to 6.5% range, with some forecasts suggesting a decline to 5.8% by Q4 2025. 

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Major financial institutions have provided the following insights for Q4 2025:

• Fannie Mae: Expects the 30-year fixed mortgage rate to average at 6.2%.

• Wells Fargo: Projects rates to average around 6.3% by the end of the year.

• Goldman Sachs: Predicts rates will remain above 6% through 2025. 

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Impact on the Housing Market

Elevated mortgage rates have a direct impact on housing affordability. Higher rates increase monthly mortgage payments, which can deter potential buyers and slow down the housing market. However, a gradual decline in rates throughout 2025 may provide some relief, potentially stimulating buyer interest and activity in the housing sector.

Conclusion

While mortgage rates are expected to decline gradually in 2025, they are likely to remain above 6% for most of the year. Prospective homebuyers and investors should stay informed about economic developments and be prepared to adapt their strategies accordingly. Consulting with financial advisors and mortgage professionals can provide personalized guidance to navigate this evolving landscape.

Understanding the Price Ceiling

Many people that decide to sell make mistakes in "prepping" their home for sale. These mistakes can be either spending money to spruce up the home that will not return in increased offers or a better price, and or not doing things that will definitely increase offers or home value.

There are many scenarios but broadly they fit into the notion of a neighborhood price ceiling. Neighbor hoods do have a ceiling. It is very possible to over improve your home. It is also possible to leave money on the table by not bringing your home up to the neighborhood standard. 

If you are intended to sell your house as a "fixer" you have to decide whether or not you want it financeable. There are essentially three tiers of finance in this regard. The best is government financeable. These homes meet the more strict standards of the FHA and VA lenders. Having your home qualify in this tier means the entire market is available to purchase the home. This is a cosmetic fixer at worst and is move in ready. Next is conventionally financeable. This means the home meets the Fannie Mae and Freddie Mac standard. The home can have a few issues like a roof that is nearing the end of life, or a bad deck in back but still is livable. These loans typically require a larger down payment by the borrower or more expensive mortgage insurance if less than 20% is put down. It tends to eliminate most first time buyers or those with tight finances. The final tier is cash or alternative financing. In this tier you are more likely to get offers from flippers or investors at lowball amounts. You might get an ambitious person that wants to live in the home but you won't be anywhere near top dollar.

If you find yourself in the cash only tier it is typically a waste of time to do cosmetic fixing since the home needs much more serious attention anyway. If you are in the Conventional tier it can be worth some cosmetic work to attract non investor buyers who tend to bid up higher. It is generally better to be in an inferior home in a nice neighborhood than the superior home in an undesirable neighborhood. 

If most home in your neighborhood are in average to below average condition and few of them have modern updates, it's better not to over improve. Cleaning up and doing some fresh paint and or making minor cosmetic repairs is fine. Don't do a 50k kitchen remodel however as you likely will not see that money at closing. If your neighbors home are all noticeably nicer than yours, then you can definitely make a handsome gain doing upgrades that bring your home into alignment with the neighborhood.  

Before doing any expensive renovations talk to your trusted real estate pro to be sure the market will be attracted to the changes and whether the expected price will benefit from those improvements.   

2025 Clark County Real Estate Outlook

Clark County's real estate market in 2025 is expected to remain resilient despite potential economic headwinds and ongoing shifts in housing preferences. Key drivers shaping the market include sustained population growth, changing interest rate dynamics, and a continued demand for diverse housing options.

Population Growth and Demand

Clark County continues to attract residents due to its relative affordability compared to most of Portland and Washington County, OR. Our desirable quality of life. Proximity to urban amenities, a robust job market, and scenic surroundings make it a magnet for families, retirees, and remote workers. As the population grows, the demand for housing is expected to keep pace, particularly in suburban and semi-rural areas. So long as our legislature and new Governor don't get greedy, we will continue to offer a superior tax profile than our southern neighbors in Oregon.

Home Prices

Median home prices in Clark County are likely to see modest appreciation, continuing trends from 2024. However, price growth may be tempered by affordability challenges and higher borrowing costs. As of late 2024, the median home price hovered around $540,000, and projections suggest a moderate annual increase of 3-5% in 2025. I feel like the projections for appreciation are a little ambitious. Unless we see a 1/2 to 1 point drop in rates, appreciation will likely be more like 2-3%

Interest Rates

The Federal Reserve's stance on interest rates will significantly influence the market. If mortgage rates stabilize or decline slightly from their 2024 levels, buyers may return to the market in greater numbers, boosting sales activity. Conversely, persistently high rates could cool demand, especially among first-time buyers. it is important to keep in mind that current rates are only slightly above the 50 year rolling average. Having just exited a long period of well below average rates, younger borrowers are not accustomed to the "real normal." The fifty year average mortgage rate is in the mid sixes and we are currently averaging around 7%. 

Housing Inventory

Inventory levels in Clark County are expected to remain tight, as new construction struggles to meet demand. Rising construction costs, labor shortages, and regulatory hurdles continue to constrain the pace of development. However, several new housing developments, particularly in Ridgefield aim to address these shortages.

Market Segments

• Single-Family Homes: Continued strong demand, especially for homes priced under $600,000. The classic median priced single family home remains firmly in the grip of sellers with about three months of inventory available. 
• Multifamily Housing: Increased interest in apartments and townhomes as affordability pressures push buyers toward more budget-friendly options. This segment has been ferociously competitive over the last decade but saw some taming in late 2023 and early 2024. The end of the year saw things tighten again however.
• Luxury Market: Demand for high-end homes may stabilize but remain a smaller segment of the market. Vancouver's luxury condo market is just a bit saturated with inventory at the moment, but sales are steady enough to keep prices stable.

Key Challenges

1. Affordability: Rising home prices and higher borrowing costs remain significant barriers for entry-level buyers. Our area is one of the most expensive in the country, yet a significantly more expensive market in the Seattle Metro is driving substantial numbers of people to our local area.
2. Inventory Shortages: Limited availability continues to frustrate potential buyers and drive competition. That situation however showed a great deal of improvement in 2024 and 2025 could see inventory levels rise a bit more. Seller's may yield a bit of the market back to buyers this year but I doubt we will move beyond a neutral market in 2025.
3. Economic Uncertainty: Broader economic conditions, including job growth and inflation trends, could influence housing demand. Inflation has finally calmed a bit but remains slightly above average. A new incoming administration at the federal level and state level could move the market one way or another.

Opportunities

1. Urban Growth Areas: Expansion in developing areas like Battle Ground and Washougal offers opportunities for affordable housing. Vancouver's Urban Growth Area still has large areas of available land for suburban and urban scale development.
2. Remote Work Influence: Remote workers continue to drive interest in Clark County, where they can enjoy suburban living with proximity to a major metropolitan area. All four of the Portland Vancouver metro area counties provide this amazing synergy of a fast transition from rural to suburban to urban. This dynamic is typically only found in mid tier major markets like Portland-Vancouver, Sacramento, Las Vegas, Cincinnati, Nashville, etc.

Overall, the 2025 housing market in Clark County is expected to balance modest growth with ongoing challenges. There are opportunities for every price range locally so buyers need not be discouraged just know that in times of high housing costs, some buyers may have to settle for something a little less than ideal. But these are stepping stones to getting the perfect house.