Publication date: 5 June 2022 | Covering: May 2022
Monthly Briefing
- US Federal Reserve raises to 0.75–1.00 per cent on May 4; largest hike since 2000; June meeting nine days away
- BOJ tightening accelerates in 2022; Jamaica inflation rising; commercial mortgage rates moving higher
- Brent crude above US$110 per barrel; Jamaica fuel and electricity costs elevated and rising
- NHT individual limit J$6.5 million; rates 0, 2, 4 per cent; critical shield against rising commercial costs
- Russia-Ukraine conflict: no ceasefire; grain corridor blocked; global food prices at multi-year highs
- Jamaica remittances holding firm; diaspora employment in US sustained by strong American labour market
US Federal Reserve May Hike: The Biggest Since 2000
The US Federal Reserve’s May 3 to 4 Federal Open Market Committee meeting delivered a 50 basis point rate increase — the largest single increment since May 2000 — raising the federal funds target range to 0.75 to 1.00 per cent. The decision reflected the FOMC’s growing urgency in response to US inflation that has accelerated well beyond the Fed’s original transitory narrative. Chair Powell signalled clearly that further 50 basis point increments were on the table at the next two meetings — June and July — while also ruling out an immediate escalation to 75 basis points. The June 14 to 15 meeting — just nine days away at the time of this publication — will be the next major test of this forward guidance, and incoming US inflation data released since the May meeting has, if anything, strengthened the case for decisive action.
The pace of Fed tightening represents a dramatic shift from the policy environment of just six months ago. Entering 2022, the federal funds rate was at essentially zero and the Fed was still expanding its balance sheet through asset purchases. By June 2022, after two rate increases totalling 75 basis points, the rate is approaching 1 per cent and the Fed is beginning to shrink its balance sheet through quantitative tightening. The speed of this reversal has roiled global financial markets, particularly equity markets — the S&P 500 entered bear market territory in May — and has contributed to a significant strengthening of the US dollar against most global currencies, including the Jamaican dollar.
Energy Prices and Jamaica’s Cost Crisis
Brent crude oil traded above US$110 per barrel through much of May 2022, sustaining pressure on Jamaica’s fuel import bill that has been building since the Russia-Ukraine conflict began in late February. Jamaica’s electricity sector, still predominantly dependent on imported petroleum, has seen electricity tariffs rise in line with fuel cost pass-through mechanisms. For households across Jamaica — including those servicing mortgages or saving toward property purchases — the combination of higher food and electricity bills has reduced the share of income available for housing expenditure. This disposable income squeeze is one of the indirect effects of the global commodity price crisis that affects housing market dynamics without showing up directly in mortgage rate statistics.
The government’s interventions to mitigate fuel cost pass-through — including adjustments to the petroleum levy structure — have provided partial relief, but the sheer scale of the global energy price shock means that Jamaican consumers are still experiencing meaningfully higher fuel and electricity costs than a year ago. For the housing market, the most significant indirect effect is on construction costs: building materials, transportation, and energy inputs have all become more expensive in the elevated oil price environment, pushing up the cost of new housing supply and sustaining property price levels even as affordability is pressured from the demand side by higher mortgage rates.
BOJ’s Tightening Response
The Bank of Jamaica’s Monetary Policy Committee has been raising the overnight policy rate through 2022 in response to CPI inflation that has accelerated well above the 4.0 to 6.0 per cent target range. The BOJ’s tightening — moving from the historically accommodative rates of 2020 and 2021 toward a more restrictive stance — is being driven by both domestic demand pressures and the need to contain the inflationary pass-through of rising import costs and Jamaican dollar depreciation. As the policy rate has risen, the cost of commercial mortgage finance has followed, with lending institutions repricing their products to reflect higher funding costs. Commercial mortgage rates in Jamaica are significantly higher than a year ago and are likely to continue rising in line with the BOJ’s policy trajectory.
NHT: The Affordability Anchor
Against the backdrop of rising commercial rates and elevated construction costs, the National Housing Trust’s role as Jamaica’s primary affordable housing finance institution has grown in strategic importance. The J$6.5 million individual mortgage limit, combined with multi-applicant ceilings of J$13 million and J$19.5 million for two and three contributors respectively, provides a framework within which a significant proportion of Jamaica’s residential market remains accessible at the NHT’s subsidised rates of 0, 2, and 4 per cent. As commercial mortgage rates rise, the real-terms advantage of NHT finance grows, making contributor eligibility an increasingly valuable financial asset.
The NHT’s housing development pipeline continues to address the structural supply side of Jamaica’s housing deficit. New housing solutions from the Trust’s development programme provide options for contributors who may struggle to access the open market at prevailing property prices, particularly in the Kingston Metropolitan Area where land costs and construction prices keep entry-level property values above the NHT’s individual ceiling. The combination of NHT scheme housing — where properties are specifically designed to be accessible within NHT limits — and open market purchasing with NHT finance covers a broad range of buyer situations.
Looking Ahead
The US Federal Reserve’s June 14 to 15 meeting is the immediate focus for global markets. A further 50 basis point increment is the base case, though the possibility of a larger move cannot be excluded if the June 10 US CPI release — due five days before the meeting — shows a fresh acceleration. For Jamaica’s mortgage market, the June Fed decision will shape expectations for the trajectory of US rates through the second half of 2022, with direct implications for the BOJ’s own policy path.
Property buyers in Jamaica should be planning for a rising rate environment through at least the remainder of 2022 and likely into 2023. Locking in commercial mortgage rates where product structures permit, maximising NHT entitlements, and maintaining conservative debt-to-income ratios are the most effective risk management tools available to buyers in the current cycle. The housing market’s structural demand drivers — the 150,000-unit deficit, urbanisation, household formation — remain intact, but the financing environment has shifted materially, and adaptation is required.
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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