Doctor’s Mortgage Rate Update: The Post-Election Doldrums


Keeping you updated on the market!
For the week of

February 13, 2017


The Post-Election Doldrums

The hoopla is over. President-elect Trump has given way to President Trump; hype has given way to reality. Reality is far less effective at capturing our imagination and fomenting activity than hype. Reality is a letdown, and the reality has set in that we voted for a president, and that’s all we voted for.

The president, as opposed to a dictator, has limited powers. Pre-election hyperbole will always be tempered by the two other branches of government — the legislative and the judicial. This fact is a frustration to those who support a new president and a comfort to those who don’t. Things settle down once a new president settles into office.

Job growth, fortunately, hasn’t settled down. Last week, the employment numbers for January were reported, and the numbers were a blowout. Payrolls rose by 227,000 for the month, easily exceeding most everyone’s expectations. The unemployment rate ticked higher to 4.8%, but the higher rate was attributed to an influx of workers.

Such a strong employment report would typically motivate interest rates to rise. Because wage growth was light, though, up only 0.1%, inflation worries were held in check. In fact, they were more than held in check: the yield on the 10-year U.S. Treasury note has actually dropped 15 basis points since the employment report was issued.

We’re quick to note that as the yield on the 10-year Treasury note goes, so, too, go mortgage rates. Quotes on a prime 30-year fixed-rate loan have dropped with the Treasury yield. They continue to hang in the 4.125%-to-4.25% range that was established at the beginning of the year, except now you’re more likely to get a quote closer to 4.125% on a prime conventional 30-year loan than to 4.25%.

The easing in interest rates is representative of post-election doldrums. There has been little economic news of late. The vacuum has put market participants on their heels, and when they’re on their heels, we tend to see rates drift lower. We’ve seen this play out with interest rates. We’ve also seen this play out with the stock market, where prices have drifted lower.

The good news is that we’ve seen purchase mortgage applications drift higher. The MBA’s seasonally adjusted Purchase Index increased 2% last week compared with the previous week. Purchase activity has been volatile week to week, but activity is still up 4% year over year. Higher mortgage rates have trimmed refinance activity, to no one’s surprise, but they haven’t trimmed purchase activity.

Given what we’ve seen in purchase-mortgage activity, and what we’ve seen in the latest pending home sales index, we expect to see decent home-sales numbers for January and February.





Date and Time
Consensus Analysis

Consumer Price Index


Tues., Feb. 14,

8:30 am, ET

All Prices: 0.2% (Increase)

Core: 0.2% (Increase)

Moderately Important. Consumer-price inflation is just low enough to give  Fed officials room not to raise interest rates.

Home Builder Sentiment Index


Wed., Feb. 15,

10:00 am, ET

67 Index

Builder optimism points to rising home starts through 2017.  

Housing Starts


Thurs., Feb. 16,

8:30 am, ET

1.228 Million (Annualized Rate)

Moderately Important. Sentiment is at a post-recession high. Prospects for income growth point to rising consumption.


Skepticism Rises

It’s unlikely the people at CNBC read our missives, but we can’t help but wonder. 

A couple weeks ago, we expressed skepticism over the likelihood of the Federal Reserve raising the federal funds rate three times in 2017. Three was the consensus estimate as we headed into the new year. The consensus estimate was predicated on Fed guidance. Fed officials had hinted that three additional rate increases were in the cards after they raised the fed funds rate in December. 

You don’t have to be from Missouri (the “Show-Me” state) to have your doubts, and we have our doubts based on the history of Fed officials following talk with inaction. Last week, CNBC reported that other people are beginning to have their doubts, as well, and the CNBC reporters offered the same rationale behind the doubts that we’ve offered. 

For one, the reporters noted the Fed’s equivocating language, which has been peppered more liberally of late with words like “accommodating” and “patience.” They also noted trader action in the futures market. Specifically, they noted that federal funds rate futures contracts don’t favor a rate increase until June. This is something we’ve noted too. 

We offer another reason to be skeptical; one few people have glommed onto — the gold price. Gold is up for the year, and it’s up strongly over the past two weeks. Gold and interest rates frequently move in opposite directions: When interest rates rise, the gold price falls because the opportunity cost of holding gold rises. The opposite is true when interest rates fall: the opportunity cost of holding gold falls; more people are willing to hold gold when interest rates fall. 

Of course, we could get three interest-rate increases by the end of 2017, but we’ll believe it when we see it. And we have our doubts that we’ll see it.
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