Publication date: 5 December 2021 | Covering: November 2021
Monthly Briefing
- US Federal Reserve announces taper November 3; begins reducing asset purchases by US$15 billion monthly
- Omicron variant first detected November 24; spreading to 70+ countries; Jamaica market uncertainty rises
- BOJ overnight rate at historically low level; commercial mortgage rates near multi-decade lows
- NHT individual limit J$6.5 million; rates 0, 2, 4 per cent; application volumes recovering
- Jamaica tourism recovering; winter season 2021-22 bookings building ahead of variant uncertainty
- US inflation 6.2 per cent in October; Fed under pressure to accelerate normalisation
US Federal Reserve Begins Taper: The First Step Toward Normalisation
The US Federal Reserve’s Federal Open Market Committee announced the beginning of its asset purchase taper at its November 2 to 3 meeting, confirming the process of withdrawing the extraordinary monetary accommodation deployed during the COVID-19 pandemic. The FOMC said it would reduce its monthly asset purchases by US$15 billion — US$10 billion in Treasury securities and US$5 billion in mortgage-backed securities — beginning in November, with a similar reduction expected in December. At that pace, the quantitative easing programme would conclude by mid-2022, removing a significant source of monetary stimulus. The federal funds rate was held at 0.00 to 0.25 per cent, with rate increases expected only after the taper was complete.
The taper announcement came against a backdrop of US inflation at its highest levels since the early 1980s. US CPI reached 6.2 per cent in October 2021 — significantly above the Fed’s 2 per cent target — and Chair Powell’s communications at the November press conference maintained the “transitory” characterisation of inflation but with evident strain. Market participants had been questioning whether the Fed’s taper pace was sufficient given the acceleration of price pressures, and the November US CPI reading would further intensify that debate. For Jamaica, the Fed’s taper announcement signals that the era of zero US rates is approaching its end, even if the rate increases themselves are still some months away.
Omicron: A New Uncertainty for Jamaica’s Recovery
The detection of a new SARS-CoV-2 variant — designated Omicron by the World Health Organisation on 26 November 2021 — introduced fresh uncertainty into a global economy that had been gradually recovering from the Delta wave earlier in the year. First identified in southern Africa, Omicron spread to more than 70 countries within days of its discovery, prompting emergency travel bans and triggering sharp market reactions as investors priced in the risk of renewed pandemic disruption. The scientific community’s early assessment was that Omicron was significantly more transmissible than prior variants, though the severity of illness it caused — and the extent to which existing vaccines protected against it — were not yet established as of early December.
For Jamaica, the emergence of Omicron came just as the island’s tourism sector was building momentum for the 2021 to 2022 winter high season. Pre-Omicron, bookings for December 2021 through April 2022 had been running ahead of the prior year’s depressed pandemic levels. The variant’s emergence creates genuine uncertainty: if Omicron proves to cause severe illness or if travel bans are maintained by major source markets, the winter season could disappoint. For the housing market, a setback to tourism recovery would slow the restoration of resort parish employment and the diaspora-driven property purchasing activity that has been a feature of Jamaica’s residential market throughout the pandemic period.
BOJ and the Commercial Mortgage Market: Still Accommodative
The Bank of Jamaica’s overnight policy rate remains at the historically low level established during the pandemic emergency period, providing the foundation for commercial mortgage rates that are near multi-decade lows. For Jamaican property buyers with access to commercial mortgage finance, the current environment is as favourable as any in recent memory in terms of borrowing costs — even as construction cost inflation and property price appreciation have partially offset the affordability gains from low rates. Jamaica’s inflation has been rising above the BOJ’s target range, driven by global supply chain disruptions and rising commodity prices, and the central bank has signalled that it will begin normalising policy as it assesses the trajectory of inflation.
The low commercial mortgage rate environment of 2021 has been a genuine window of opportunity for buyers who have been able to act. However, the signals from the US Federal Reserve — taper in November, rate hikes projected for 2022 — and the BOJ’s own inflation concerns suggest that this window is narrowing. Buyers who complete transactions in the coming months at current commercial rates will benefit from rates that are unlikely to be available for extended periods into 2022 and beyond.
NHT: Recovering Application Volumes
The National Housing Trust’s mortgage application volumes have been recovering through 2021 as the COVID-related disruption to economic activity has eased. The J$6.5 million individual ceiling and multi-applicant limits of J$13 million and J$19.5 million, combined with rates of 0, 2, and 4 per cent, continue to provide the most accessible mortgage finance available in Jamaica for eligible contributors. The NHT’s COVID-era relief measures — including mortgage payment deferrals for contributors who experienced income disruption during lockdown periods — allowed many mortgage holders to preserve their properties through the worst of the economic disruption. As conditions have normalised, the NHT has resumed its standard operations and its development pipeline has continued to progress.
Looking Ahead
The December 14 to 15 US Federal Reserve meeting will be the next major monetary policy event, and the outcome of that meeting — including any acceleration of the taper pace and the Committee’s rate projections for 2022 — will be closely watched. The trajectory of Omicron will be the other dominant variable: if the variant proves less severe than feared and vaccine protection holds, the recovery can resume; if severe illness or vaccine escape is confirmed at scale, the outlook for 2022 will require reassessment.
For Jamaica’s property buyers, the message is that the window of exceptionally favourable commercial mortgage rates is finite. Acting in the near term at current rates remains the most cost-effective approach for buyers who are financially prepared. NHT contributors should ensure their eligibility is current, their documentation is in order, and their understanding of the applicable limits and rate bands is accurate as they plan their acquisitions for the months ahead.
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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