Doctor’s – Rate Update for Doctor Loans: How to Interpret Something From Nothing


Keeping you updated on the market!
For the week of

February 20, 2017


How to Interpret Something From Nothing

Federal Reserve Chair Janet Yellen garnered a lot of attention this week for her Humphrey-Hawkings testimony before Congress. It appears Fed watchers and financial-market participants were bowled over by the following commentary: Yellen said that if employment and inflation are “continuing to evolve in line with [the FOMC committee’s] expectations” that “a further adjustment of the federal funds rate would likely be appropriate.” 

Soon after Yellen’s utterance of these seemingly noncommittal and innocuous words, the odds of an impending Fed hike in the federal funds rate spiked higher. One notable Goldman Sachs economist even ventured to opine that Yellen’s words offer “relatively strong support for near-term policy action." Near term means that Fed officials could raise the fed funds rate at its next meeting in March. 

Goldman’s economists might be jumping the gun. The odds for a March rate increase did spike, but the odds still favor inaction. Traders in federal funds rate futures contracts are betting only a 22% chance the fed funds rate will be raised next month (though this is five percentage points higher than the odds given last week). The odds don’t rise to 50% that an increase will occur until May. The week before, June was the closest month giving 50% odds. 

Mortgage rates appear to be bracing for the likelihood of interest rates rising sooner than later. Mortgage rates have trended higher this week. Quotes on a prime conventional 30-year loan have ranged between 4.125% and 4.25% nationally since early January. Early last week, the quotes were bundled closer to 4.125%. This week, they’ve been bundled closer to 4.25%. 

It’s unlikely the Fed will raise the fed funds rate next month.  As for May, we’ll believe it when we see it.  We still think June is the closest month for a rate increase to occur (and when it does occur, it will be only 25 basis points). 

So, where does this leave us? 

We still think three rate increases, which were proffered by many prognosticators at the beginning of the year, is too optimistic. Indeed, CNBC noted last week that JPMorgan’s economists now see no more than two rate increases this year. We surmised last month that only one increase could be in the cards. (But if we see two, we won’t be surprised.) 

At this point, market participants just seem antsy for an interest-rate increase, and for interest rates to move higher. This sentiment should settle down once Yellen’s recent testimony is forgotten. But with the strong jobs report for January and consumer price inflation inching higher, we don’t see interest rates easing in the near future. 

As for mortgage rates, the 4.125%-to-4.25% range on a prime 30-year conventional loan should continue to hold (we have seen a few quotes at 4.375%), but expect quotes to remain bundled closer to 4.25%. Then again, this time next week we could be saying expect quotes to bundle closer to 4.125%. Such is the difficulty in gauging something that takes the flight path of a butterfly.





Date and Time
Consensus Analysis

Existing Home Sales


Wed., Feb. 22,

10:00 am, ET

5.5 Million (Annualized)

Important. Pending home sales data point to rising  sales through February.

New Home Sales


Fri., Feb. 24,

10:00 am, ET

538,000 (Annualized)

Important. Data from home builders show sales trending higher.  

Consumer Sentiment



Fri., Feb. 24,

10:00 am, ET

96 Index

Moderately Important. Consumer sentiment on current conditions remains strong and points to elevated consumer spending.


Residential Activity Continues to Drive Growth

Home builders might be less optimistic today than they’ve been in recent months, but they’re still optimistic. 

The NAHB home builder sentiment index posted at 65 for February, less than it was in January and December. The good news is that the sentiment index remains far above the break-even mark of 50. What’s more, the six-month expectations component of the index is still above 70.

Optimism is reflected in current activity. Housing starts posted at 1.246 million on an annualized rate for January. This was 2.6% below starts for December (though both December and November starts were revised higher). Upon closer inspection, we find that the important single-family segment posted a 1.9% gain compared with December. Overall, starts are up 10.5% year over year. The trend in starts remains our friend, and we don’t see that changing in the near future. 

The NAHB reminds us that housing is an important contributor to gross domestic product (GDP), averaging a 15%-to-18% contribution to GDP annually. Residential investment, which construction plays a large part, averages 5% of GDP annually.  Given the data on sales, pricing, and investment that we’ve seen to start the year, housing should continue to contribute to the high-end of its historical average through 2017, and likely beyond.
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