Jamaica Homes Monthly Mortgage & Housing Finance Review — February 2023

Publication date: 5 March 2023 | Covering: February 2023

Monthly Briefing

• US Federal Reserve steps down to 25bps hike on February 1, raising to 4.50–4.25 per cent target range
• BOJ overnight rate holds at 7.00 per cent; inflation deceleration encouraging but incomplete
• NHT individual mortgage limit remains J$6.5 million under current framework
• Jamaica CPI tracking lower from 2022 peaks; still well above 4.0–6.0 per cent target
• Diaspora remittances sustained; US labour market resilience supports Jamaican households
• Global commodity prices easing; imported inflation headwinds gradually reducing

US Federal Reserve Slows Pace: 25bps Hike on February 1

The US Federal Reserve’s Federal Open Market Committee met on January 31 to February 1, 2023 and raised the federal funds rate by 25 basis points, bringing the target range to 4.50 to 4.75 per cent. The step-down from the 50 basis point increment delivered in December 2022 — and the series of 75 basis point hikes that preceded it — represents a deliberate recalibration by the Committee as cumulative tightening of over 450 basis points begins to feed through into the US economy. Chair Jerome Powell’s post-meeting press conference struck a balanced tone: he acknowledged the encouraging deceleration in US inflation while insisting that the job was not yet done and that further increases remained likely before the cycle concluded.

The February decision is being read by markets as a signal that the Federal Reserve is entering the final phase of its tightening cycle. With the funds rate now at 4.50 to 4.75 per cent, the real question is no longer how many more hikes remain but how long rates will be held at restrictive levels before the first cut. Chair Powell explicitly pushed back against expectations of near-term cuts, emphasising that the Committee would need to see sustained progress on inflation before loosening policy. For Jamaica’s central bank and financial system, the US rate environment remains a primary external input. A US funds rate above 4.50 per cent sustains demand for dollar assets and limits the BOJ’s room to ease even if domestic conditions improve.

BOJ Maintains 7.00 Per Cent: Inflation Trajectory the Key Variable

The Bank of Jamaica’s overnight policy rate remains at 7.00 per cent per annum, the level reached in November 2022 after a steep tightening cycle that brought the rate from historically low pandemic-era levels to the current restrictive setting in under twelve months. The BOJ’s Monetary Policy Committee met in February and reaffirmed the hold, citing ongoing above-target inflation as the primary rationale for maintaining restrictive conditions. Jamaica’s annual CPI inflation, while showing early signs of deceleration from the elevated readings of mid-to-late 2022, remains well above the 4.0 to 6.0 per cent target range.

The BOJ’s communications have been careful to distinguish between acknowledging the improving trajectory and declaring victory. The central bank remains alert to the risk of premature easing — reducing the policy rate before inflation is durably within the target band — which could undo the credibility gains made through the aggressive 2022 tightening cycle. For mortgage market participants, the implication is clear: the current rate environment, which places commercial mortgage rates in the 8 to 12 per cent range, is unlikely to shift materially in 2023 unless Jamaica’s inflation profile improves faster than the BOJ currently projects.

NHT: Current Framework and the Market Context

The National Housing Trust’s mortgage products continue to operate under the existing framework, with an individual open market loan ceiling of J$6.5 million, multi-applicant limits of J$13 million for two contributors and J$19.5 million for three, and the established rate bands of 0, 2, and 4 per cent calibrated to contributor income levels. In the context of commercial mortgage rates ranging from 8 to 12 per cent, the NHT’s subsidised rates represent a substantial benefit for eligible contributors — a differential that has become even more pronounced as the BOJ’s tightening cycle has raised commercial lending costs.

The elevated commercial rate environment is reshaping how Jamaicans approach property purchases. Buyers who can access NHT finance up to the J$6.5 million ceiling are prioritising that portion of their financing and minimising commercial mortgage supplements. For those purchasing properties above the NHT ceiling, the commercial supplement required at 8 to 12 per cent adds meaningfully to total borrowing costs. This has had a moderating effect on demand in the upper-middle price segments of the market while keeping affordable and entry-level segments relatively active, supported by NHT participation.

Global Commodity Price Relief and Jamaica’s Imported Inflation

One of the more encouraging developments for Jamaica’s inflation outlook in early 2023 is the easing of global commodity prices from the elevated levels reached in 2022. Energy prices — which drove a significant portion of Jamaica’s imported inflation given the country’s heavy dependence on petroleum imports for electricity generation and transportation — have retreated from their 2022 peaks as global demand has moderated and supply concerns have partially eased. Food commodity prices have also shown early signs of moderation following the disruptions of 2022. For Jamaica, which imports a substantial share of its energy, food, and manufacturing inputs, falling global commodity prices translate directly into reduced cost-push pressure on domestic inflation.

The exchange rate dimension of imported inflation also merits attention. The Jamaican dollar has faced modest depreciation pressure against the US dollar in the high-US-rate environment, adding a foreign exchange pass-through to import costs. The BOJ has managed this through periodic interventions in the foreign exchange market, and the country’s strong remittance inflows and improving tourism receipts have provided a natural hedge against excessive depreciation. The USD/JMD exchange rate has remained in a manageable range, avoiding the kind of sharp depreciation that would materially accelerate imported inflation.

Remittances and the Diaspora: Housing Market Support

Diaspora remittances remain a critical support pillar for Jamaica’s residential property market. The United States labour market, which employs a significant share of Jamaica’s overseas diaspora, has remained remarkably resilient despite the Federal Reserve’s aggressive tightening. US unemployment near historic lows means that Jamaican diaspora households have maintained income stability and the ability to continue remitting funds to family in Jamaica. These remittances flow into household consumption, support savings accumulation for property deposits, and in many cases fund direct property purchases by diaspora members returning to or investing in Jamaica.

Looking Ahead

The next US Federal Reserve meeting is scheduled for March 21 to 22, 2023. The incoming US inflation data — particularly the February CPI report due in mid-March — will be the primary input to the Committee’s decision. If inflation shows further deceleration, a continued 25 basis point increment is the base case; if data surprises to the upside, a return to 50 basis points remains possible. The trajectory of US monetary policy will remain a significant external constraint on Jamaica’s own easing timeline.

Domestically, Jamaica’s own inflation data and the BOJ’s quarterly monetary policy assessments will be closely watched. The BOJ has indicated that it expects inflation to approach the target range in 2024, and any data confirming or accelerating that trajectory will shape expectations for when the BOJ’s easing cycle might begin. For prospective mortgage borrowers, 2023 looks set to remain a high-rate environment for commercial finance, reinforcing the strategic importance of NHT eligibility and contributor status.

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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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