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The Post-Election Doldrums

February 13, 2017


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. 

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