Jamaica Homes Monthly Mortgage & Housing Finance Review — August 2022

Publication date: 5 September 2022 | Covering: August 2022

Monthly Briefing

• US Fed at 2.25–2.50 per cent after July 27 hike; Powell’s Jackson Hole speech signals more tightening
• Fed September meeting approaching; further 75bps increment widely expected
• BOJ overnight rate rising through 2022 tightening cycle; commercial mortgage rates repricing upward
• NHT individual limit J$6.5 million; subsidised rates 0, 2, 4 per cent; critical affordability buffer
• Global inflation above target in virtually all major economies; commodity prices remain elevated
• Jamaica fuel prices high; energy import bill pressuring external accounts and household budgets

Jackson Hole: Powell’s Hawkish Signal

The global monetary policy narrative in August 2022 was shaped decisively by Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium on August 26. In unusually blunt terms, Powell stated that restoring price stability will “require maintaining a restrictive policy stance for some time,” explicitly pushing back against market expectations of a near-term pivot to rate cuts. He invoked the lessons of the 1970s and early 1980s, when premature easing allowed inflation to re-accelerate, imposing far greater economic costs than if tighter policy had been sustained. The speech caused an immediate market reaction: equity prices fell sharply, bond yields rose, and the US dollar strengthened, reflecting the market’s recalibration toward a longer period of restrictive monetary conditions.

The backdrop to Powell’s Jackson Hole speech was the July 26 to 27 FOMC meeting, which delivered a second consecutive 75 basis point hike, raising the federal funds rate to 2.25 to 2.50 per cent. By the time of the Jackson Hole gathering, there was growing speculation that the US economy might already be in a technical recession — two consecutive quarters of negative GDP growth having been recorded — and some market participants had been pricing in rate cuts for early 2023. Powell’s speech emphatically closed off that narrative: the FOMC would not repeat the mistakes of past episodes in which central banks declared premature victory over inflation.

Jamaica’s Commercial Mortgage Market Under Rate Pressure

The Bank of Jamaica’s tightening cycle, which has been advancing through 2022 in response to above-target inflation, has significantly altered the commercial mortgage landscape for Jamaican property buyers. Deposit-taking institutions that price mortgages off their cost of funds have been progressively raising commercial mortgage rates as the BOJ’s overnight rate has risen. By September 2022, commercial mortgage rates across Jamaica’s major lenders are substantially higher than at the start of the year, with the range for standard residential mortgages reflecting the full impact of the BOJ’s mid-year rate movements.

For property buyers, the repricing of commercial mortgages means that the same monthly payment now services a meaningfully smaller loan than it would have eighteen months ago. A buyer who budgeted for a commercial mortgage component at rates available in late 2020 or 2021 will find that the same budgeted payment supports a loan amount that may be 20 to 30 per cent smaller at current rates, depending on the mortgage term. This affordability compression has not been uniform across the market: the NHT’s subsidised rate products remain unchanged, insulating eligible contributors from the commercial rate increase for the portion of their purchase within the NHT ceiling.

Energy Import Costs and Jamaica’s Inflation

Jamaica’s inflation in August 2022 reflects, in significant part, the sustained elevation of global energy prices. Jamaica remains highly dependent on imported petroleum products for electricity generation — the majority of the island’s power is still generated from oil-fired plants — and for transportation fuels. With global crude oil prices elevated throughout 2022 in the wake of supply disruptions associated with the Ukraine conflict and OPEC+ production management, Jamaica’s fuel import bill has been substantially higher than in recent years. The petroleum levy and electricity tariff pass-through mechanisms mean that global oil prices translate relatively directly into domestic fuel and electricity costs for Jamaican households and businesses.

The energy cost pressure has two direct housing market implications. First, as a component of the CPI basket, elevated energy costs contribute to the above-target inflation that is driving the BOJ’s tightening cycle and, through it, higher commercial mortgage rates. Second, for homeowners and renters, higher electricity and fuel costs increase the total cost of occupying a property, reducing the share of income available for mortgage repayments or savings accumulation. The government’s management of the petroleum levy and its social protection interventions have partially mitigated the impact on lower-income households, but the pressure on middle-income earners — the core demographic for NHT and affordable commercial mortgage products — is real.

NHT: Sustaining Accessibility in a Challenging Environment

The National Housing Trust’s mortgage framework has provided a consistent point of accessibility through the turbulence of 2022. The J$6.5 million individual ceiling, combined with multi-applicant options of J$13 million and J$19.5 million, gives eligible contributors access to housing finance at rates that are structurally insulated from the commercial rate cycle. The 0, 2, and 4 per cent bands have remained unchanged, meaning that the real value of NHT access — measured against commercial alternatives — has increased materially as the commercial rate environment has risen.

Housing developers working on NHT-partnered schemes have benefited from continued demand from contributors. The NHT’s own project pipeline, with approximately 41,000 housing solutions at various stages of development, continues to represent a meaningful supply-side response to Jamaica’s structural housing deficit. However, as with private sector development, construction cost inflation has increased the per-unit cost of new NHT housing, creating budgetary pressures within the Trust’s project economics. The NHT has continued to manage these pressures through project-by-project assessment and ongoing engagement with its contractor base.

Looking Ahead

The US Federal Reserve’s September 20 to 21 meeting is the next critical global monetary event. Following Powell’s Jackson Hole hawkishness and the strong August US jobs data, a 75 basis point increment is the dominant market expectation. This would bring the US funds rate to 3.00 to 3.25 per cent, placing further upward pressure on global rates and sustaining US dollar strength. For Jamaica, the external environment remains challenging, and the BOJ’s domestic policy response will continue to reflect the interaction between domestic inflation dynamics and the global monetary backdrop.

Property market participants should continue to focus on NHT eligibility, deposit accumulation, and property selection within realistic affordability parameters. The commercial mortgage rate environment is likely to remain elevated through the end of 2022 and into 2023, and acquiring at commercially viable terms will require either strong NHT support or acceptance of higher commercial rate costs. Careful financial planning — including stress-testing mortgage affordability at rates somewhat above current levels — remains essential in the current environment.

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.