Welcome back to a brand new year in 2017. Here’s wishing everyone who follows this blog a prosperous year ahead, and I do not mean just financially but more importantly in health, love and fulfillment.
Last year (2nd half) we suspended giving any further forecasts on SIBOR after the shocking outcome of Brexit and before we know the results of US Presidential election. That turned out to be quite a good move as any prediction by anyone would have been thrown out the window when Donald Trump won on 8 Nov 2016. Look at how even pundits got it so wrong with ensuing reactions from stock markets post-election, which has staged the strongest rally to push DOW to new highs almost touching 20,000. Next US Fed hiked the federal funds rate only second time in a decade on 15 Dec 2016 to a range between 0.50% and 0.75% as rightly anticipated by most but what spooked the market somewhat was the aggressive stance of 3 hikes predicted for each of the next three years from 2017 to end 2019 at 2.9%!
In keeping with our tradition here as probably the few if not the only mortgage comparison site that forecasts interest rate movements from our reading of events in financial markets, we are starting the year re-iterating our view late last year – that 3-month SIBOR (currently 0.96 as at 23 Dec, ABS website) will likely rise up in the year, but not as quickly as what the market had anticipated, to a level around 1.50 by end of 2017. And this will be the position where we give our mortgage advisory from.
Most likely the question we will get asked – fixed rate seems to be the best move then correct?
That depends. There are a few factors to consider and one of which obviously is the gap or premium of fixed over the lower floating rate. As it is now we know there is still a 1% floating rate home loan package (but not for too long as it ends on 15 Jan 2017) which offers quite a big gap from the lowest fixed rate in the market at 1.70%! Once that expires, we have to look at what’s the new level of fixed rate and what this gap between fixed and floating looks like. In fact, coming back into the new year, we are now eagerly awaiting all the new rates from lenders. So quickly contact us today to secure existing rates before they get revised most likely upwards.
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Before we end, we need to touch on our basis for this forecast of two rate hikes in second half of 2017 leading to 3-month SIBOR ending around 1.50 by Dec of 2017:
- We see Trump administration lifting US corporate earnings through fiscal policies especially tax cuts, leading to wage increases and feel-good factor filtering down to consumer & business spending.
- However the traditional cold harsh winter months will slow US economic activities in the first half which is why Fed will hold back continuation of rate hikes until the second half.
- The biggest risk to global growth in 2017 is likely the continued strength of the dollar triggering financial market chaos in South Asia and China as funds exit the market. This has already started in the final month of 2016 and looks set to continue. All eyes will be on the extent and the resulting governmental actions.
- On oil, the continued tussle of power between OPEC (which controls 40% of supply) and US shale producers the likes of EOG & Continental Resources will continue into 2017. We talked about this way back in Dec 2015 that OPEC will act at some point as prices are held down artificially in a bid to drive out competition and it happened towards the end of 2016. Unfortunately as what we have explained previously the shale producers could ramp up productions just as quickly and stand to benefit the most from the recent OPEC cuts. However we are betting that they will learn from lessons of the past two years and do this in a controlled pace hence we see oil price likely to stay up above USD50 a barrel and more likely near a range of USD60. We have even read bullish forecast of USD65-70 by end of 2017. Overall this would support inflation in US and bolster the case for interest rate hikes. Still the demand side needs to catch up, ie. China and Europe
Then finally there are talks of trade war between US and China, and Eurozone’s meltdown due to the populist movement which frankly no one can predict, hence we cannot base our forecast on any of that. We know the resolve of China with regards to one-China policy and we already saw the President-elect knowing which button to press to get a response from China. Whether that turns out to be utter foolishness or astute political maneuvering from a shrewd businessman-turned-politician awaits to be seen. My guess is that the business sense will prevail on both sides. We just hope no war ever breaks out in South China sea nor anywhere in the world.
We may not always get it right in our forecast but we have been close. Our philosophy is to advise from a position of knowledge along with some calculated risk rather than not to have any position at all, and be caught out. Rising rates, as long as it is at a gradual pace, does not necessarily mean fixed rate will always be the best choice, as our Interest Simulator will show you. There is also the option of de-leveraging or paying down which is what we expect over the next few years when interest goes up. Speak to our consultants today to find out where you stand.
To end off, there is still going to be a lot of uncertainties in 2017. We think the path of interest rate movements will become clearer towards early 2018 after about a year into the Trump’s administration and that might also be the best time to go long on fixed rate should the pace of rate hikes indeed quickens.
At MortgageWise, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements. We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal. We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.
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