Publication date: 5 January 2022 | Covering: December 2021
Monthly Briefing
- US Fed December 14-15 doubles taper pace; projects three rate hikes in 2022; US inflation at 6.8 per cent
- Omicron variant spreading rapidly globally; disrupting tourism and economic recovery expectations
- BOJ overnight rate at low pandemic-era level; inflation above target; normalisation signalled for 2022
- NHT individual limit J$6.5 million; rates 0, 2, 4 per cent; framework stable through 2021
- Jamaica 2021 GDP recovery on track; formal sector employment recovering; tourism partial rebound
- Property market active; pent-up demand and diaspora interest sustaining transaction volumes
Federal Reserve December Pivot: Three Hikes Projected for 2022
The US Federal Reserve’s December 14 to 15 Federal Open Market Committee meeting marked a decisive acceleration of the policy normalisation signal. The FOMC announced it would double the pace of its asset purchase taper — from US$15 billion to US$30 billion per month — positioning the quantitative easing programme to conclude by March 2022 rather than June. More significantly, the Committee’s December Summary of Economic Projections showed a median of three rate hikes in 2022, three more in 2023, and additional tightening in 2024, implying a federal funds rate of around 2.1 per cent by end-2023. This was a dramatic upward revision from the September projections, which had shown only one hike in 2022.
The catalyst for the December pivot was the persistence of US inflation well above the Fed’s 2 per cent target. US CPI reached 6.8 per cent in November 2021 — the highest since June 1982 — and the Fed’s own preferred inflation measure, the Personal Consumption Expenditures Price Index, was running similarly elevated. Chair Powell formally retired the description of inflation as “transitory” in late November and the December projections confirmed the FOMC’s shift toward a more urgent stance. For Jamaica, the Fed’s December signals mark the beginning of a global monetary pivot that will reshape the external environment for the BOJ and the commercial mortgage market through 2022 and beyond.
Omicron: A New Variant Disrupts the Recovery Narrative
The Omicron variant of SARS-CoV-2 was first detected in southern Africa in late November 2021 and had spread to over 90 countries within weeks — a speed of transmission unprecedented among COVID-19 variants. By December, Omicron was driving a dramatic surge in cases across Europe, North America, and the Caribbean. Jamaica was not immune: infections increased significantly in December as the variant spread through the population. The critical unknown at this stage is the severity of Omicron-related illness relative to prior variants: early data from South Africa suggested lower hospitalisation rates per case, but the sheer volume of infections threatened to overwhelm health systems even if individual case severity was reduced.
For Jamaica’s tourism sector — which had been recovering strongly through the autumn of 2021 — Omicron represents a potentially significant setback to the winter high season. Flight cancellations, travel advisories from source markets, and traveller hesitancy are all affecting bookings. The tourism sector’s full recovery from the pandemic’s impact had been projected for 2022 or 2023; Omicron may push that timeline further out. For Jamaica’s housing market, a delay in full tourism recovery would slow the restoration of the foreign exchange earnings that underpin the BOJ’s external account management and the income of resort parish workers who are a core constituency for property market activity.
2021: A Year of Recovery and Rising Prices
As Jamaica closes 2021, the year can be characterised as one of economic recovery alongside rising inflation — a combination that has created a complex environment for the housing market. Jamaica’s GDP, which contracted sharply in FY2020 as tourism collapsed and economic activity was disrupted by pandemic restrictions, has been recovering through FY2021 as vaccination rates increased, restrictions were relaxed, and global economic activity picked up. The formal sector labour market has been healing, and remittance inflows remained remarkably strong through 2021 despite the pandemic — in part because US fiscal support measures maintained disposable income for the diaspora even during the height of the economic disruption.
Jamaica’s CPI inflation rose above the 4.0 to 6.0 per cent target range during 2021, driven by a combination of global supply chain disruptions, rising commodity and shipping costs, and the recovery of domestic demand. Construction costs — a direct input to housing supply — rose significantly as steel, cement, timber, and fixtures all became more expensive in the global commodity price environment. This cost inflation has sustained property price levels and created headwinds for new affordable housing supply, even as the BOJ’s accommodative monetary policy kept commercial mortgage rates near historical lows through most of the year.
NHT in 2021: Consistent Support for Affordable Housing
The National Housing Trust maintained consistent mortgage support for eligible contributors through 2021, with the J$6.5 million individual limit, multi-applicant ceilings, and subsidised rate bands unchanged. The pandemic period tested the NHT’s systems as some contributors faced employment disruption that affected their contribution records, but the Trust’s COVID-related relief measures — including mortgage payment deferrals and contribution grace periods — helped maintain the integrity of the contribution-based system. By the second half of 2021, NHT application volumes had recovered as economic activity normalised and deferred purchases came to market.
Looking Ahead
2022 opens with two primary uncertainties for Jamaica’s housing market: the trajectory of the Omicron wave and the path of monetary policy normalisation. If Omicron proves less severe than feared and the current wave subsides by February, the tourism recovery can resume and the macroeconomic context will be broadly supportive. If Omicron drives sustained disruption, the recovery timeline extends and the BOJ must navigate a more challenging external environment. On monetary policy, the Fed’s December projections point clearly to rate increases beginning in March 2022 — a development that will progressively tighten global financial conditions and require the BOJ to manage Jamaica’s monetary normalisation in a more challenging external context.
For Jamaica’s property market, 2022 looks set to be a transitional year: the pandemic-era combination of low rates and pent-up demand will give way to a higher-rate environment even as the underlying structural drivers of housing demand — the deficit, urbanisation, household formation, and diaspora interest — remain firmly in place. Buyers who move quickly in the first quarter of 2022 may still access commercial rates at or near current levels; those planning for later in the year should budget for a materially higher borrowing cost 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.
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