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Stay Ahead Of The Curve
The interest rate cycle forms the basis of all our recommendations. We’ll help you stay ahead the curve. Save big on mortgage interests when you work with the right team.
Just like investing in properties, it’s often not what you buy but when, that guarantees big profits. Likewise, getting your timing & strategy right (fixed vs. floating, etc) saves you much more than comparing that few decimal points in rates.
Work with a company that has been through various phases in the cycle since 2014 and coming out on top each time with our forecast each time! As proof, we showcase our forecasts below with specific recommendations in reverse chronological order.
* Updated twice a year, speak to our consultants for the password to access our latest forecast for 2022/23, exclusive for our clients.
Rates nosedived in March 2020 at the peak of the pandemic (lock-down period) where U.S. Fed slashed the fed funds rate first by 0.50% (3 March) on Sunday night, followed by a full 1% cut from 1.25% down to almost zero, and brought back QE (quantitative easing) this time unlimited. It kept up its ultra-loose monetary policies of bond purchases all through the 2-year pandemic. However, that is about to end with rate hikes on the cards – and we correctly predicted it will come no later than Jun 2022. Fed started its first hike in 3 years with 0.25% in FOMC Mar 2022.
Forecast (16 Dec 2021): We expect Fed to ready itself to lift-off on rates as early as Mar 2022, or not later than Jun 2022.
Forecast (23 May 2020): Fixed rates still hovering at 1.50% but we expect it to eventually drop to 1.20-1.30%. Banks resist dropping fixed rates too quickly which erodes their interest income unnecessarily. It did eventually drop to our forecast 1.25% (13 Sep 2020) but went even below that to new historical lows of 1.10% by mid of 2021 (plus 1.00% for >$1m)
Forecast (10 Mar 2020): Banks will slowly adjust their spreads on floating SIBOR home loans and urged all clients to quickly lock down the spreads at 0.25%, which eventually risen to 0.80-0.85% with final interest stabilised at prevailing 1% level.
Throughout this low plateau phase, our strategic recommendation is to go on floating rate SIBOR or SORA (newly-launched 2H 2021) until such time it becomes clear Fed is reversing course.
After 9 rate hikes over the span of 3 years (2016-2018) to reach 2.50% fed funds rate, U.S. Fed surprised the market with a reversal in policy stance by hinting in Mar 2019 that rates hikes were off the table, in the midst of worsening US-China trade war row. With unemployment rate in U.S. continuing in its down trend to decade low 3.4%, it puzzled the Fed why inflation is not rearing its ugly head. The Fed eventually executed up to three “insurance cuts” in Jul, Sep & Oct 2019.
Forecast (5 Jan 2019): We expected the tariff war between Trump & China to abate by 2H of the year and Fed to resume its two forecasted rate hikes in the year to bring fed funds near its longer run “neutral” rate which we put it at 3% max out. But we got it wrong this time as persistently weak inflation despite solid wage gains & weakness emerging in the economy due to the trade row led Fed to seek safety via some “insurance rate cuts” to support the economy.
Forecast (23 May 2019): Yield curve first inverted on 22 Mar 2019 for the first time since 2007. We first put forth the theory (graphically, trajectory 3) that a major market crash tend to follow about a year later after the yield curve inverts. Or when Fed presses the pause button on rate hikes which happened in 2019. In an eerie way (more luck than skill), this foreshadowed the covid-19 crisis almost exactly a year later by March 2020.
At start of the Fall phase from 2019, fixed rates hit 2.58%! This is the point we switched to recommend floating rate home loans after fixed rate went above 2.10%. This was 6 months before Fed started cutting rates which vindicated our strategy. The idea was – there’s no way rate hikes can continue at the same pace of another 9 hikes or 2.50% in 3 years which will bring fed funds to 5% (black line in 2006!)! Market will crash long before that happens. Clients who took our advice benefited greatly when covid-19 hits one year later as they locked down SIBOR spreads of 0.20-0.25% and pay interest at 0.50% throughout this phase.
US Fed hiked rate for the first time in a decade in December 2015 (the spike in black line). However, you can see that SIBOR has gotten ahead of that a year back and was in fact retracing and giving back some of earlier increases. We call this a false start and is best explained by the sudden collapse of oil price in October 2014 from its high of US$150 per barrel, leading to a shock in the system and liquidity crunch. SIBOR, however, eased back in the next two years due to the slowdown in Singapore’s economy and a faltering oil & gas market that wrecked havoc on banks’ loan books. This was the time when DBS stock price retraced all the way back to $8.
For mortgages, many who knee-jerked into signing for fixed rates at the end of 2014 and early 2015 found themselves shortchanged as prevailing rates did not rise much as anticipated by the end of their 2-year lock-in period. In fact, it went further south due to a falling SIBOR in 2016.
The real ascent came after Fed’s first hike in 2015 which was to be accompanied by 8 subsequent hikes over a 3-year period to bring Fed funds rate close to 2.50%. By early 2019, fixed rate home loans in Singapore have soared to 2.48-2.58% as repricing banks urged and hurried more existing borrowers to reprice to fixed rate.
Forecast (3 Jan 2018): Total of 3 hikes in 2018, primarily due to dramatic corporate tax cuts in the U.S. from 35% to 21% signed into law by Donald Trump by Christmas of 2017. We think inflation will start to run up on solid wage gains due to a tight labour market as companies expand/invest with huge lift in corporate earnings. Fed eventually hiked 4 times by the end of 2018, one more than our forecast. However, we were right to predict strong wage increases through the year which is the main factor that propelled Fed to add an additional hike.
Forecast (2 Jan 2017): The first year of President Trump’s office after 2016 election seen massive euphoria in financial markets which powered DOW to over 20,000 (threshold then). We predicted 2 hikes and added 1 more by mid-year review of our forecast but moderated our view on SIBOR here to hit only 1.30 instead of 1.50. Fed eventually did 3 hikes in 2017 and SIBOR ended the year on a last-minute surge to 1.50.
Forecast (31 Dec 2015): With most analysts pricing in 4 hikes in 2016 based on Fed’s dot plots, we think the more likely outcome is 2 with uncertainties still looming large globally with slowdown in China’s economy (yuan devaluation 2H of 2015) & a roiled oil & gas sector. We suspended forecasting in 2H of 2016 as watershed event of US Presidential Election makes it almost unpredictable. Fed eventually did only one hike toward end of the year on 15 Dec 2016.
Forecast (22 Oct 2015): Correctly predicated the first historical rate hike in a decade to be announced by Fed Chair Janet Yellen (17 Dec 2015) by Dec of 2015 rather than 2016, which kicked off a series of total 9 hikes over span of next 3 years.
During this Ascent phase, our primary recommendation was to go on fixed rate be it 2-year or 3-year, which risen steadily from a low of 1.30% to 2.00%. Those who locked down fixed rate in the 2H of 2016 got their timing spot-on after Trump’s election win and became real winners in this cycle. Still, there were some who lose out over-committing to 5 years fixed term as rates eventually did not rise up as much as feared. Lesson learnt.
The Long Plateau
This is the phase post financial crisis of 2008. US Fed slashed fed funds rate to zero and embarked on the initially-controversial QE (quantitative easing) programme over a 4-year period from 2019-2012 which would see it ballooned its balance sheet from US$1.5t to over US$4.5t by aggressively buying mortgage-backed securities, bonds & Treasuries. This released massive liquidity into the global banking system but the slosh of funds did not lead to hyper-inflation as feared by main critics of QE. What got inflated rather were financial/real estate assets all over the world as hungry investors chased after yields and returns which drove up stock market and property prices to unprecedented levels.
In terms of interest rate, you can see how the near zero Fed funds plus QE kept SIBOR down and flat at about 0.40-0.50% for almost 6 years from 2009 to 2014.
There’s also a transient phase dubbed a “False Start” where SIBOR here in Singapore has moved when oil prices crashed in Oct 2014 but came down subsequently in 2015 as Fed has yet to lift off on rates not until Dec 2015.
MortgageWise commenced operations in April of 2014. Had we begun earlier, our recommendation in this phase of the cycle would be to stay on the lower floating rate (headline rate 1%) but retain flexibility in the loan as much as possible in order to adjust when things change. In other words, stay nimble and that means a shorter lock-in period would be preferred. True enough, no one was quite interested in fixed rate home loans during this time with homeowners refinancing from a 1% home loan to the next 1% home loan whenever the thereafter rate shot up.
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