Jamaica Homes Monthly Mortgage & Housing Finance Review — April 2020

Publication date: 5 May 2020 | Covering: April 2020

Monthly Briefing

• US COVID first wave at peak through April; 26 million unemployment claims in five weeks; economic contraction severe
• Fed April 28–29 holds 0.00–0.25%; unlimited QE; all emergency facilities maintained; risks “substantial”
• CARES Act US$2.2 trillion signed March 27; largest US fiscal stimulus in history; US$1,200 direct payments
• Jamaica COVID restrictions: partial lockdowns; CARE programme for household income support
• BOJ pandemic emergency measures; NHT mortgage payment relief for affected contributors
• NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; housing market in holding pattern

The COVID Economic Shock: April at the Epicentre

April 2020 produced the most severe single-month economic contraction in US and global economic history. The enforced shutdown of vast swaths of economic activity — retail, restaurants, hotels, entertainment, travel, and much of the service sector — resulted in an unemployment shock of unprecedented speed and scale. In the five weeks through late April, approximately 26 million Americans filed initial jobless claims, erasing a decade’s worth of employment gains in little more than a month. The US unemployment rate, which stood at 3.5 per cent as recently as February, was widely expected by economists to have reached levels between 15 and 20 per cent in April — a figure not seen since the Great Depression. Advance estimates of US GDP for the first quarter suggested a contraction at an annualised rate of nearly 5 per cent, with April’s full impact not yet captured in the Q1 data.

For Jamaica, the US economic shock was transmitted through multiple channels. Remittance flows — which had shown remarkable resilience in the early pandemic weeks, partly buoyed by the CARES Act stimulus payments reaching diaspora households — faced the risk of deterioration as US unemployment sustained at elevated levels for longer. Tourism, Jamaica’s largest economic sector, was entirely closed: the international airport had been shut to commercial flights since March 23, and there was no clear timeline for resumption. The combination of the external demand collapse and domestic restrictions produced a GDP contraction in Jamaica that economists were projecting to be among the most severe in the island’s history.

Federal Reserve: Maximum Accommodation

The Federal Open Market Committee held the federal funds rate at 0.00 to 0.25 per cent at its April 28 to 29, 2020 meeting, its first regularly scheduled meeting since the two emergency inter-meeting rate cuts of 3 and 15 March. The Committee maintained the full package of emergency measures: unlimited asset purchases (refined to specific monthly amounts of US$80 billion in Treasuries and US$40 billion in agency MBS), and the suite of emergency lending facilities established since mid-March. The statement noted that the pandemic had caused “tremendous human and economic hardship” and that “the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

Chair Powell’s post-meeting remarks were notably candid about the severity of the situation and the uncertainty of the path ahead. He cautioned that the recovery would require a vaccine or effective treatment to be truly complete, and that the pace of recovery would depend heavily on the pandemic’s evolution. For Jamaica and the global economy more broadly, the Federal Reserve’s extraordinary response — cutting rates to zero, deploying unlimited QE, and standing up multiple emergency facilities — had prevented the pandemic’s economic shock from becoming a full-scale financial crisis. US dollar funding markets remained functional, credit spreads had narrowed significantly from their March peaks, and the global financial system was operating without the liquidity seizure that had defined the 2008 crisis.

CARES Act: The US Fiscal Backstop

The US$2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, signed by President Trump on 27 March 2020, represented the largest single-piece fiscal legislation in US history. The package provided US$1,200 direct payments to most American adults, enhanced and extended unemployment insurance (including the new US$600 per week federal supplement), the Paycheck Protection Programme for small businesses, US$500 billion in corporate and government lending facilities, and direct aid to states, hospitals, and airlines. The scale of the fiscal response was commensurate with the shock: policymakers and economists recognised that the ordinary automatic stabilisers of the tax and transfer system were inadequate to sustain household incomes through the deliberate suppression of economic activity required by the pandemic.

For Jamaica, the CARES Act had indirect effects through its support for the US Jamaican diaspora community. The US$1,200 direct payments and enhanced unemployment insurance provided meaningful income support to diaspora households, some of which was channelled back to Jamaica as remittances. The PPP supported the small businesses that employ a significant proportion of the US Jamaican community. The aggregate effect was to partially buffer the expected deterioration in remittance inflows that the pandemic employment shock would otherwise have caused.

Jamaica’s Mortgage Market: Relief and Resilience

The Bank of Jamaica’s pandemic emergency measures, including the reduction of the overnight policy rate to an all-time low and liquidity support for the financial system, maintained the functioning of Jamaica’s mortgage market through the most acute phase of the crisis. Commercial banks and building societies continued to service existing mortgage portfolios and process new applications, though with heightened caution and some adjustments to lending criteria. The National Housing Trust implemented mortgage payment relief for contributors who could demonstrate pandemic-related financial difficulty, allowing deferred payments and restructured schedules to reduce the risk of defaults in the NHT portfolio. The NHT’s J$6.5 million individual loan ceiling and subsidised rates of 0, 2, and 4 per cent remained the foundation of affordable residential finance for eligible contributors.

Looking Ahead

The trajectory of the US and Jamaican COVID outbreaks through May will determine how quickly economic restrictions can be lifted. The US reopening debate — with some states moving to phase out restrictions even as others maintain caution — will be closely watched for the implications for the US economic recovery and hence Jamaica’s external environment. Jamaica’s government is expected to set a timeline for international tourism reopening in the coming weeks. The Federal Reserve’s next meeting on 9 to 10 June will provide updated economic projections for the first time since before the pandemic.

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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