Publication date: 5 August 2022 | Covering: July 2022
Monthly Briefing
- US Federal Reserve raises to 2.25–2.50 per cent on July 27 — nine days ago; second consecutive 75bps hike
- US Q2 GDP contracts for second quarter; “technical recession” debate intensifies in Washington
- BOJ tightening cycle in active phase; Jamaica commercial mortgage rates rising materially
- NHT individual limit J$6.5 million; rates 0, 2, 4 per cent; value versus commercial market increases
- Ukraine conflict: no resolution in sight; energy and food commodity prices remain elevated
- Jamaica CPI above target; BOJ committed to restoring price stability
US Federal Reserve: Second 75bps Hike in Nine Days
Just nine days before this review is published, the US Federal Reserve’s Federal Open Market Committee delivered its second consecutive 75 basis point rate increase, raising the federal funds target range to 2.25 to 2.50 per cent at its July 26 to 27 meeting. Chair Powell’s July press conference provided a nuanced reading of the economic outlook: while the FOMC acknowledged that some indicators of economic activity had softened, Powell maintained that the labour market remained strong and that inflation at forty-year highs required sustained restrictive monetary policy. The Fed chair said the FOMC would make decisions on a meeting-by-meeting basis using incoming data, leaving the September increment open to possibilities ranging from 50 to 100 basis points.
The July 27 decision brought cumulative Fed tightening since March 2022 to 225 basis points in five meetings. For context, the federal funds rate entered 2022 at essentially zero; the rate is now at the upper end of the range the Fed considers “neutral” — neither stimulative nor restrictive. The path ahead will take the rate firmly into restrictive territory as the Fed pursues its inflation objective. This trajectory has significant implications for global capital markets: the US dollar has strengthened materially against virtually all currencies, global equity valuations have compressed, and the cost of external financing has risen for emerging and developing economies.
US Recession Debate: Implications for Jamaica
The US Bureau of Economic Analysis’s advance estimate of Q2 2022 GDP, released on July 28, showed a second consecutive quarter of negative growth — meeting the conventional definition of a “technical recession.” The White House pushed back on that characterisation, pointing to continued strong job creation as evidence that the economy was not in recession in any traditional sense. The debate reflects genuine complexity: the US labour market is exceptionally tight, with unemployment near historic lows, yet real output is contracting and consumer sentiment is depressed by inflation. The Fed, for its part, has not characterised the current situation as a recession and has maintained that the conditions necessary for a soft landing — inflation returning to target without a significant increase in unemployment — remain achievable.
For Jamaica, the US economic trajectory matters primarily through its effects on tourism demand and diaspora remittances. A genuine US recession that generated significant job losses would reduce the income of Jamaican diaspora households in the United States, flowing through to reduced remittance transfers. Given that remittances represent approximately 20 per cent of Jamaica’s GDP and are a major source of property purchase financing for many households, a sustained US downturn would be a meaningful headwind for Jamaica’s housing market. The current US data picture — strong employment, negative output growth — creates genuine uncertainty about the near-term trajectory.
BOJ and Jamaica’s Commercial Mortgage Market
Jamaica’s own monetary tightening cycle has been proceeding through 2022 at a pace calibrated to the BOJ’s inflation-fighting mandate. Commercial mortgage rates have risen materially from the lows of 2020 and 2021, tracking the higher cost of funds that deposit-taking institutions face in the elevated policy rate environment. The practical effect on Jamaica’s property market has been to reduce the purchasing power of buyers relying on commercial finance — a trend that will persist until the BOJ’s tightening cycle is complete and rates begin to reflect an easing trajectory.
Property prices in Jamaica’s major markets have remained broadly elevated despite the rate increase, sustained by structural demand driven by the housing deficit and the continued inflow of remittance capital. However, the pace of transaction activity has moderated in some segments as commercial mortgage costs have risen, and some prospective buyers have deferred acquisitions pending a clearer picture of the rate outlook. This is a rational response to uncertainty, and it illustrates how monetary policy conditions interact with housing market dynamics.
NHT: The Stabilising Role of Subsidised Finance
Against the backdrop of rising commercial rates, the National Housing Trust’s subsidised mortgage products continue to provide a critical stabilising function. The J$6.5 million individual limit and multi-applicant ceilings of J$13 million and J$19.5 million remain unchanged, offering eligible contributors access to mortgage finance at rates of 0, 2, and 4 per cent. As the gap between NHT rates and commercial rates has widened through 2022’s tightening cycle, the relative value of NHT access has increased substantially. For a contributor eligible for the 2 per cent rate accessing J$6.5 million over 30 years, the saving against a commercial mortgage at current rates is significant in both monthly payment and total interest terms.
The NHT’s housing development programme continues to advance new solutions across the island, with projects in various parishes addressing the structural 150,000-unit housing deficit. Construction cost pressures — elevated throughout 2022 due to global commodity and supply chain factors — have increased per-unit costs and required the NHT and its development partners to manage project budgets carefully. Nonetheless, the Trust has maintained its commitment to delivering new housing solutions, recognising that the long-run supply response is essential to any durable improvement in Jamaica’s housing affordability.
Looking Ahead
The US Federal Reserve’s September 20 to 21 meeting is the next critical global policy event. Incoming data on US inflation, employment, and economic activity through August will determine whether the Fed opts for another 75 basis point hike or a somewhat smaller increment. Jackson Hole — the Fed’s annual symposium in late August — may provide early signals. For Jamaica, the BOJ’s own MPC calendar and the trajectory of domestic CPI will determine the pace and eventual endpoint of the local tightening cycle.
For prospective property buyers in Jamaica, the message of the current environment is clear: NHT access is a premium asset that provides protection against the worst of the commercial rate environment. Maintaining NHT eligibility, maximising contribution history, and understanding the limits and rate bands applicable to individual circumstances are the highest-return preparatory steps for any prospective property buyer in the current cycle.
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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