Mortgage rates have been increasing globally as central banks view interest rates as an effective way to tackle the high inflation. Most of them including Singapore take reference from the US Federal Reserve when it comes to setting rates. Following the Federal Reserve Chairman’s comments that rates increase will continue, Wall Street risked off and caused Dow Jones crashed by 1,008 points on 26 August 2022.
As of 5 Sep, the most widely used reference rate for housing loans (3 months compounded SORA) stood at 1.6654%. Banks in Singapore are more inclined to offer floating-rate loans instead to avoid locking themselves in at fixed rates. OCBC’s 1 year and 2 year fixed rate packages are 2.68% and 2.75% respectively as at 31 August and the floating rate margins after the expiry of the fixed rates are higher as compared to taking a floating rate package from the onset.
How Will Interest Rates Move In The Long Term?
Our guess can only be as good as the FOMC’s members’ projections which are illustrated in the Fed Dot Plot. Inferring from the above Fed Dot Plot published after the June 2022 meeting, an overwhelming majority of the members were of the view that the rates would peak at 3.50% in 2023 and begin a gradual decline to 2.50% in the longer term. Hence we would expect the Fed to trim rates beginning 1st quarter or 2nd quarter of 2023 after the members see signs that inflation is easing.
Do note that the projections are subject to change as new data comes in. If inflation remains high, we should expect the Fed to keep rates high until inflation is under control.