Publication date: 5 April 2005 | Covering: January – March 2005
Quarterly Briefing
- Fed hiking: February 2 to 2.50%; March 22 to 2.75%; fifth and sixth consecutive hikes; “measured” tightening pace; housing market absorbing rises
- Asian tsunami relief ongoing: December 26 2004 catastrophe; 228,000 killed; largest relief effort in history; reconstruction commitments US$13.5bn; Caribbean solidarity
- Pope John Paul II: Dies April 2 (FRESH 3 days); global mourning; largest funeral in history; pontificate of 26 years ends; Benedict XVI to be elected
- Lebanon Cedar Revolution: February; Prime Minister Rafic Hariri assassinated February 14; mass protests demand Syrian withdrawal; Syria pulls troops out April
- Greenspan conundrum: Long rates not rising despite Fed hikes; 10-year Treasury at 4.3%; global savings glut; mortgage rates still low fuelling housing
- Dollar weakness: Euro near US$1.35; dollar index declining; US current account deficit at record 6% of GDP; sustainability debate
- US housing: Existing home sales near record; prices up 10%+ nationally; affordability deteriorating; speculative buying widespread
- Jamaica: Post-Ivan recovery continuing; tourism rebuilding; NHT active; construction sector recovering
Fed Continues Hiking; Long Rates Stay Low
The Federal Reserve continued its gradual tightening cycle in the first quarter of 2005, raising the federal funds rate from 2.25% to 2.50% at the February meeting and to 2.75% at the March meeting. The cycle, which had begun in June 2004 with rates at the emergency-low 1%, was proceeding at a “measured” pace of 25 basis points per meeting. Despite these hikes, the phenomenon that would become known as the Greenspan Conundrum continued: long-term interest rates refused to rise as expected, with the 10-year Treasury yield remaining around 4.3%. The practical consequence for the housing market was significant: 30-year fixed mortgage rates, which are priced off long-term Treasury yields rather than the Fed funds rate, stayed low, providing continued fuel to the housing boom. The dollar, meanwhile, continued to weaken — the euro traded near US$1.35 and the US current account deficit had reached approximately 6% of GDP, the largest in peacetime history. Economists debated whether this deficit was sustainable or would require a sharp adjustment; the dollar’s gradual depreciation suggested the market was finding a slow-motion resolution rather than a crisis.
Tsunami Relief; Lebanon; Pope John Paul II
The international humanitarian response to the December 26 2004 Indian Ocean tsunami — which had killed 228,000 people and devastated coastlines from Indonesia to Sri Lanka, India, and Thailand — continued to dominate development finance discussions through the first quarter of 2005. Pledged relief and reconstruction commitments totalled approximately US$13.5 billion from governments, multilateral institutions, and private donors — the largest humanitarian response to a natural disaster in history. In Lebanon, the February 14 assassination of Prime Minister Rafic Hariri — killed in a massive car bombing widely attributed to Syrian intelligence — triggered the Cedar Revolution: weeks of mass protests by Lebanese citizens demanding an end to Syrian occupation, which resulted in the withdrawal of Syrian forces from Lebanon in April. Pope John Paul II died on 2 April after a prolonged public illness, ending a 26-year pontificate that had been of extraordinary historic significance — encompassing his role in the fall of communism in Eastern Europe, his global ecumenical outreach, and his travels to 129 countries.
Jamaica: Post-Ivan Recovery; Mortgage Conditions
Jamaica’s first quarter of 2005 was shaped by continued recovery from Hurricane Ivan’s September 2004 devastation. The reconstruction of damaged buildings and infrastructure, particularly in the western parishes and along the south coast, was ongoing. Tourism’s recovery was gradual as hotel rooms remained out of service and airlift was still being re-established in some routes. The NHT’s mortgage programmes continued at subsidised rates of 0%, 2%, and 4% on loans up to J$6.5 million individually or J$13 million for two-applicant borrowings, providing the primary accessible route to homeownership for Jamaican workers. The BOJ maintained elevated domestic interest rates, keeping commercial mortgage costs high relative to the NHT tiers and relative to the international environment.
Looking Ahead to Q2 2005
The Pope’s death and the election of his successor will be the major cultural event of the early second quarter. Economically, the Fed’s measured hiking cycle continues — markets expect further moves — while the Greenspan Conundrum’s persistence raises questions about the efficacy of monetary tightening when long rates are anchored by global savings flows. For Jamaica, tourism’s continued post-Ivan recovery and the approaching hurricane season are the primary near-term concerns.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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