(Updated at 19.30am: A few “honest mistakes”)
We’ve heard a lot in the constructive, nation-building media* and from cybernuts about coming big rises in mortgage rates. The cybernuts in TRE are happy because the rising rates show (in their demented, deranged minds) the folly of
mortgagees mortsagors voting for the PAP. As though voting for their heroes, Dr Chee, s/o JBJ, Roy, Han Hui Hui, M Ravi and Goh Meng Seng would make a difference.
Well the brainless “PAP is always right” hacks and hackettes and the “PAP is always wrong” nuts are likely to be wrong and
mortgagees mortgagors will have a festive Deepavali , a Merry Christmas, a Happy New Year and a Prosperous Lunar New Year: if market expectations are to be believed.
Market expectations have played down the chance of US tighter monetary policy before next year. Futures markets predict a 32.3% chance of a rise by December, with March currently given an even chance of a Fed move.
What this means is that there come December the market thinks the Fed will stay its hand. And maybe stay its hand in March. Btw,“We see another round of QE ,,,” said Merrill Lynch this week, implying that the Fed will soon loosen policy.
But economists in London and NY still forecast rise in Fed rate before year’s end. Despite a tempering in the US labour market, 65% of the 46 economists from leading banks polled by the FT said the central bank would increase the federal funds rate at its December meeting.
If they are wrong and the markets are right,
mortgagees mortgagors can keep on partying thru to end of March if not longer. The only dark cloud is that residential property prices are flat if not edging down
The Fed’s decision not to raise rates in September and October has allowed MAS to ease things a little here
On Oct 14, our central bank, the Monetary Authority of Singapore (MAS), announced that it would continue to ease monetary policy** to accommodate for the slower growth that Singapore is experiencing, largely due to weaker global growth expectations. It could do this because the Fed stayed its hand on raising interest rates.
A slower appreciation of the S$ raises the rate of inflation: not good for retirees like me. We want deep deflation.
But a slower appreciation of the S$, is good for exchange rate sensitive industries such as manufacturing, tourism, and professional services that have regional clients.
To make things simple, monetary policy is like steroids for the economy. If our economy is underperforming, MAS can stimulate it by injecting some steroids. That is what happened, by easing our monetary policy.
Coming back to the possibility of a rate rise by the end of the year: a large majority of policymakers, 13 out of the 17, or 76% 0n the Fed’s rate-setting Open Market Committee, expect a rate rise this year.
A bet against a rate rise is a bet that they will change their minds.
The big divergence in opinion between the Fed and the markets over when rates will rise means that if the Fed moves in December there will be serious volatility and
mortgagees mortgagors will be having a miserable Christmas, a sorrowful New Year and an abalone-and angpow-free Lunar New Year. They’ll be crying all the way to the bank what with higher interest rates, tanking residential prices and the probability of losing their jobs.
But will the mortgagees have a Merry Christmas, a Happy New Year and a Prosperous Lunar New Year? Paying out huge bonuses? I doubt it. They’ll be worried about loan defaults.
This appeared in CNA shumetime back
Mortgage rates have risen since the start of the year, and analysts have said home owners should brace themselves for further increases.
At the beginning of 2015, home buyers in Singapore could get loans that start at 1.6 per cent in the first year. That rate has been creeping up, and the figure is now around 2 per cent, for rates pegged to three-month Singapore Interbank Offered Rate (SIBOR), said CEO of financial advisory firm SingCapital, Alfred Chia.
Mortgage brokers also said rates are likely to go up further, as recent increases in the three-month SIBOR – a key benchmark used by banks when setting mortgages – have not been fully reflected in the interest rates homeowners are currently paying.
Said Mr Chia: “With an impending rise of the US Federal Reserve rates, SIBOR is definitely set to rise. Banks have used SIBOR or Swap Offer Rate (SOR) as a reference when they do the mortgage interest rates. Meaning to say, they peg it to a public rate, and if the rates go up or down, it will affect the mortgage interest rates the borrowers will serve.”
DBS said it expects SIBOR to rise from the current 1.13 per cent to 1.22 per cent by the end of this year, and 1.75 per cent in about a year’s time.
Should mortgages increase by the same amount, a family with an outstanding S$500,000 mortgage spread over 20 years will have to pay an additional S$137.71 a month to service the loan.
Assuming variable interest rate rises from the current 2 per cent now to 2.6 per cent next year, the monthly instalment will rise from S$2,529.42 to S$2,667.13, using DBS’s online mortgage calculator.
Analysts have said most home owners can shoulder the burden as banks must ensure borrowers can still service their home loans if interest rates rise to 3.5 per cent, according to Monetary Authority of Singapore (MAS) requirements.
**Singapore manages its monetary policy by using the exchange rate (not interest rates like the Fed, BoJ, BoE, ECB etc. Dt Goh Keng Swee said using interest rate to control monetary policy is not effective as the exchange rate in an open, tiny economy like S’pore’s.). The exchange rate is pegged to a “sectre” basket of currencies from countries that are important trading partners. The US$ is a big, big component.