Doctor’s: Economic & Rate Update for Doctor’s > Most Everything Trends Higher


Keeping you updated on the market!
For the week of

May 1, 2017


Most Everything Trends Higher

Rising prices usually result in reduced sales. That is, rising prices result in reduced sales if demand remains constant. Demand for housing has hardly remained constant; it has been accelerating.

Existing-home sales were up a strong 4.4% to 5.71 million units on an annualized rate in March. This is the best month-over-month increase since February 2007. More impressive, sales volume wasn’t juiced up by price concessions. To the contrary, the median price of an existing home was up 3.6% to $236,400 in March. Accelerating demand is further evinced by days on the market, which dropped to 34 in March from 45 in February.

It’s not just existing-home sales clawing to higher ground. New-home sales continue to claw higher as well. Sales of new single-family homes posted higher than most economists expected. New-home sales posted at 621,000 on an annualized rate in March. This is 5.8% higher than February sales. Only July 2016 sales have posted higher since the recession ended in 2009.

As with existing-home sellers, new-home sellers weren’t discounting to move inventory. The median price of a new home rose 7.5% to $315,100 for March. Supply did move up marginally, but at the current sales pace, inventory remains steady at a 5.2-months supply.

Though mortgage rates have trended lower since March, they, too, were actually up over the past week, though not by much. Quotes between 4% and 4.125% on a prime conventional 30-year loan are the norm around the country these days. Quotes could move into the 4.125%-to-4.25% range if the Trump administration’s recent talk of a 15% corporate income tax rate gains traction.

Financial-market participants reacted favorably to the talk of lower corporate income tax rates this week by moving out of haven investments, like U.S. Treasury securities, and into riskier investments, namely stocks. If lower corporate income tax rates come to fruition, more money will flow out of bonds and into stocks. Mortgage rates, in turn, will be pressured to rise.

That said, we have to keep our perspective; for now it’s only talk. As we saw with the proposed overhaul of the Affordable Care Act, talk can lead to nowhere. Because we’re dealing with talk at this point, we see the current range of mortgage-rate quotes established over the past week holding for the immediate future.




Date and Time
Consensus Analysis

Construction Spending


0.5% (Increase)

0.5% (Increase)

Moderately Important. Residential spending continues to pace overall gains, which bodes well for future new-home sales.

Federal Reserve FOMC Meeting

Wed., May 3,

2:00 pm, ET

Federal Funds Rate: 0.75%-to-1%

Moderately Important. Traders are pricing virtually no chance of a rate increase at the May meeting of Fed officials.





Fri., May 5,

8:30 am, ET

Unemployment Rate: 4.5%

Payrolls: 135,000 (Increase)

Important. Growth estimates have been re-calibrated lower. Expectations are for low economic growth through the first half of 2017


A Trade War Is Still a War

It’s a bad idea because it’s bad economics.

We refer to the Trump administration imposing a 20% tariff on Canadian soft-lumber imports. The lumber is used in framing new-home construction. Thirty-three percent of the soft-lumber used in the United States is imported, and 95% of the imports come from Canada.

If you are wondering why the tariff, it’s in response to the administration’s claims that some Canadian provinces allow loggers to harvest trees from government land at reduced rates and then they sell the lumber at low prices.

Not surprisingly, U.S. lumber producers benefit from the tariff (which is why they lobbied for it). Also not surprisingly, U.S. homebuilders and home buyers bear the costs. It will cost homebuilders more to build a home; it will cost home buyers more to buy the home. Higher costs are the last thing we need in a housing market where supply and affordability are serious issues for many potential buyers.

You could argue that it’s unfair that Canadian lumber producers are subsidized by their government to produce and sell lumber. Fair enough, but if the Canadians are willing to subsidize the lumber industry and it benefits U.S. consumers, we shouldn’t argue too loudly. There are far more U.S. consumers of lumber than there are U.S. producers. What’s more, the money U.S. consumers don’t have to spend on lumber can be spent on other goods and services and other investments, which will benefit many U.S. producers. (This fact is often overlooked in the analysis.)

For every tit, a tat is sure to follow. The Canadian government will surely retaliate with its own tariff applied to a U.S. export to Canada (even it if it will hurt Canadian consumers). A trade war is, after all, a war, and it’s a war no one wins in the end.
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