Jamaica Homes Monthly Mortgage & Housing Finance Review — October 2023

Publication date: 5 November 2023 | Covering: October 2023

Monthly Briefing

• BOJ overnight rate holds at 7.00 per cent; inflation deceleration validates sustained restrictive stance
• US Federal Reserve holds at Nov 1 meeting; Powell signals US tightening cycle may have peaked
• Jamaica CPI continues systematic decline; target range entry expected in 2024
• NHT J$7.5 million individual limit now four months established; five per cent band operational
• Commercial mortgage rates 8–12 per cent; affordability constrained but demand structurally sustained
• October property market steady; hurricane season winding down; year-end activity anticipated

BOJ Holds at 7.00 Per Cent: Data Validates the Patient Approach

The Bank of Jamaica’s overnight policy rate remains unchanged at 7.00 per cent per annum as of November 2023, maintaining the restrictive stance that has been in place since November 2022. The Bank’s most recent communications have consistently emphasised that the sustained tight posture is working as intended: Jamaica’s headline inflation has been on a steady downward path throughout 2023, declining from the 7 to 9 per cent range in the first quarter toward the 6 to 7 per cent range by the fourth quarter. The distance to the 4.0 to 6.0 per cent target range is narrowing, but the BOJ has been clear that it will not ease until it has sustained evidence of on-target performance.

Jamaica’s most recent CPI data, covering the period through September 2023, shows the deceleration pattern that the BOJ has been seeking. The annual rate has moved from above 8 per cent in early 2023 to approximately 6 to 7 per cent by September, reflecting the combined effects of moderating global commodity prices, the BOJ’s own tight monetary stance, and the drop-out of high-base comparison months from 2022 in the annual calculation. October’s CPI data, to be released by STATIN in mid-November, is expected to show further progress. The BOJ’s next formal decision will come at the December meeting, where the Quarterly Monetary Policy Report will provide the Bank’s updated projections for the inflation trajectory.

For Jamaica’s housing market, the continuing hold at 7.00 per cent means that commercial mortgage rates remain elevated and affordability constrained. Buyers who rely on commercial mortgage finance continue to face the combined challenge of high borrowing costs and property prices that have not softened commensurately with the demand suppression created by the rate environment. Those with NHT access are relatively insulated, as the Trust’s income-banded rates of 0 to 5 per cent provide a dramatically more affordable alternative. The contrast between the two routes to mortgage finance — and the relative advantage of NHT access — has never been starker than during the current tightening cycle.

US Federal Reserve November 1 Decision: Signalling the Peak

The US Federal Reserve’s Federal Open Market Committee held the federal funds rate at the 5.25 to 5.50 per cent target range at its November 1 meeting. The decision marked the second consecutive hold following the July 2023 hike that brought the rate to its current level. Chair Jerome Powell’s post-meeting remarks were closely parsed by market participants for any further shift in the Fed’s posture. Powell acknowledged that financial conditions had tightened substantially — in part through the sharp rise in long-term US Treasury yields to multi-decade highs of above 5 per cent seen in October — and that this tightening had reduced the need for the Fed itself to raise rates further. While maintaining data-dependence as the operational framework, the overall communication was interpreted as suggesting that the hiking cycle had likely peaked.

For Jamaica, the significance of the Fed’s November hold and its accompanying tone extends beyond the rate decision itself. A US tightening cycle that has reached its peak removes a significant source of upward pressure on the cost of international capital and on the US dollar. The high US dollar, sustained by years of Fed tightening and the interest rate differential with the rest of the world, has been a pressure on the Jamaican dollar throughout the post-pandemic period. A Fed that is done hiking, and beginning to consider when to cut, reduces this pressure and improves the operating environment for the BOJ’s own eventual easing cycle. With the US hiking cycle appearing to have concluded, the direction of global monetary policy is now turning toward the next question: when does the cutting begin?

NHT: The July 2023 Reforms at Four Months

The National Housing Trust’s package of reforms effective 1 July 2023 — the most significant update to the Trust’s mortgage product in several years — has now been in operation for four months. The J$7.5 million individual loan limit for open market purchases has replaced the previous J$6.5 million ceiling, providing an additional J$1 million of NHT finance to eligible contributors purchasing in the open market. The J$8.5 million option for properties valued at J$12 million or less fills a gap in the product range for contributors pursuing slightly more affordable properties at the qualifying boundary. Multi-applicant loans at J$15 million for two contributors and J$21 million for three contributors allow pooling of NHT entitlements at the higher limits.

The 5 per cent rate band introduced in July 2023 for contributors earning above J$100,000 per week is a significant structural change. Under the previous framework, higher earners contributed to the NHT but did not have access to a rate band that reflected their income level, creating a situation where many higher-income contributors chose not to utilise their NHT entitlement because the available rates (principally 4 per cent) were not sufficiently attractive relative to their access to commercial alternatives. The 5 per cent band is still dramatically below commercial market rates of 8 to 12 per cent, and creates an incentive structure that brings these contributors back into active NHT participation.

The Jamaican Property Market in October

October typically marks the transition from the slower hurricane season months into the more active final quarter of Jamaica’s property market year. With the season’s statistical peak now past, buyers who had paused their search and viewing activities return to the market, and developers who held back launches in August and September begin releasing new inventory and pricing for the fourth quarter. The 2023 October market has followed this pattern: activity has picked up across Kingston, the Portmore and Spanish Town corridors, and the north coast communities, as buyers and sellers re-engage after the mid-year pause.

The affordability environment remains the principal constraint on transaction volumes. At commercial mortgage rates of 8 to 12 per cent and property prices in established communities that have continued to appreciate despite the rate environment, the pool of buyers who can comfortably service a commercial mortgage has narrowed compared to the low-rate environment of 2020 and 2021. NHT-eligible buyers are relatively more active, benefiting from the Trust’s below-market rates and the expanded loan limits of July 2023. Cash buyers — including diaspora purchasers and local investors — continue to account for a meaningful share of transactions in the segments least dependent on mortgage finance.

Looking Ahead

The BOJ’s December Monetary Policy Committee meeting will be accompanied by the year-end Quarterly Monetary Policy Report — the most comprehensive statement of the Bank’s view that will be published before 2024 begins. Market participants will look to the QMPR for any updated timeline on when the BOJ expects to begin easing and what inflation performance is required to trigger the first cut. The US Federal Reserve’s December 12 to 13 meeting — which will include updated economic projections and a new dot plot — will precede the BOJ’s December decision and will provide the global context.

For Jamaica’s property market, the closing weeks of 2023 represent the peak of the diaspora and returning-resident purchasing season. Families visiting for the Christmas and New Year period are historically a significant source of property transactions, particularly in the tourist-adjacent communities of the north coast and the established residential areas of Kingston. Developers, estate agents, and the NHT’s marketing operations all target this period as one of the year’s best opportunities to convert viewer interest into committed transactions.

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.