(F) lady deciding which bank to refinance to

Will fixed rate drop below 3% soon?

At the pace it has been dropping over the last few months, it’s no wonder we get that question from clients.  No one can predict this accurately a 100 per cent.  But if I’m to stick my neck out and venture a guess, I will say perhaps by early 2024? Maybe even before the end of the year?

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We’ve seen fixed rate going below floating rate for the most parts of this year, ever since floating rate on SORA broke the 4-handle sometime in March.  It has pretty much stayed in that 4.00 to 4.30 per cent range with a 3-month SORA that’s stabilising in the 3.50 to 3.80 per cent level.  On the other hand, 2-year fixed rate mortgages peaked out in December 2022 at 4.25 per cent and has since been on a slow gentle downtrend retracing back to 3.75 per cent by March 2023, 3.50 per cent by June and finally now to 3.30 per cent.  For sizeable loans above one million, it can even drop to 3.20 per cent!

If we continue on this same trajectory with about 0.50 per cent decline every 6 months, we will soon have fixed rates going below 3% before the year is even over.

However, as we all know, things are not so simple.  It’s a world in flux now with slowing growth but high inflation, inverted yield curve, bonds trading at discount, and so on.  The latest talk is you might see Bank of Japan turning hawkish and causing capital flight from US Treasuries leading to even higher yields at the long end of the curve. I suspect even banks are finding it hard to price mortgages as we see some quoting lower spreads on loans pegged to 3-month compounded SORA, while others are quoting lower spreads for those pegged to 1-month compounded SORA.  When in reality, unlike the old 1-month or 3-month SIBOR pegs, the underlying SORA is one singular overnight interbank lending rate. I am not sure if there should be different spread treatments though I concede that’s not my area of expertise.

When it comes to fixed rates, it seems like banks are finding lower and lower cost of funds with falling deposit rates?  To this end, you will probably see local banks with advantage in pricing over foreign banks with their large sing dollar deposits base.

For us here at MortgageWise, we will be watching closely the spot or daily SORA which is hovering in the 3.50 per cent range.  We think it has peaked out at this range between 3.50 to 4.00 per cent, doesn’t matter whether Fed is going to enact another one or two more rate hikes from here.  Speaking of Fed narrative, the market can swing in one dovish direction for one month and it’s risk-on; the next month, it can swing the other way where bears come out on top and it’s risk-off.  Do you follow such roller-coaster swing in opinions when you decide on something that you are going to commit to for the next two years?  Food for thought.

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rising mortgage interest rate

Singapore’s Ministry of Trade and Industry (MTI) has just announced downshifting of our full-year 2023 GDP forecast from a range of 0.5 to 2.5 per cent previously, to a range that’s now between 0.5 and 1.5 per cent.  It has cited factors like continued softness in China’s economy, protracted weakness in the manufacturing sector going through a longer-than-expected electronics slump, and subdued growth in finance and insurance due to restrictive financial conditions.  Only aviation, tourism-related and consumer-facing sectors like retail and F&B buck the trend with ongoing recovery in in-bound tourism evident from all the concerts and events.

Against such backdrop, it will be hard to imagine robust growth in 2024 if the only global growth engine – U.S. economy, also sputters and goes out into a recession.  That’s still a likely outcome notwithstanding more talk of a soft landing in recent months.  If the banks are unable to lend out its funds as the economy contracts, SORA in theory would come down which has been the case in past cycles.  SORA will first have to break below the current levels decisively before we can see fixed rates going below that psychologically-important 3 per cent level.

The three local banks which reported earnings recently were all projecting single-digit or weakening loan growth going forward.  Perhaps, in a most telling sign on which way interest rate will head in 2024, it was reported that DBS chief Piyush Gupta had offloaded some $3.4m worth of DBS shares last week.  Check this article we posted back in April on the correlation between bank stocks and federal funds rate when the cycle comes down.  In a way, it reaffirmed what we’d been saying since the start of the year – do not overcommit on mortgage lock-in periods.  You might just regret it, as some already were.

Need more advice?  We don’t just throw you a set of rates, or get different bankers to sell to you.  Not only do we help clients navigate through Singapore mortgage rates quick and fuss-free, we show you how best to position and profit from the interest rate cycle, be it for residential or commercial property loan. Work with us today and you’ll also be helping to support our social cause!

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Disclaimer: MortgageWise.sg endeavours to bring the best insights and knowledge in our expert domain of mortgage planning to the market.  Still, all viewpoints expressed in our blog remain as opinions of the writer, and shall not be constituted as financial advice.  We cannot be held responsible in any way for any financial losses arising from your mortgage decisions should you choose to rely on any of our viewpoints and opinions.