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6 Ways US Fed Rate Cuts In 2024 Impact Singapore Home Loans

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On December 13, 2023, the Federal Reserve paused its rate hikes, maintaining the fund rate at a 22-year high in the 5.25%-5.5% range. This pause, following a series of hikes since March 2022, unofficially marked the end of Fed’s one of the most aggressive rate hike campaigns. The Fed’s statement indicated its plans for three quarter-point rate cuts in 2024. It also suggested that despite a decline in inflation, it remains higher than desired.

This shift in monetary policy could mean lower interest rates and in turn, lower borrowing costs. This positively impacts everything from credit cards to mortgages and home loans, potentially benefiting homebuyers and borrowers with more affordable loan options.

The relationship between US Fed interest rate cuts and mortgage rates is complex but highly relevant for Singaporean homebuyers. Being aware of how changes in US interest rates can impact homebuyers in Singapore can help individuals make informed decisions in the property market.

In this article, we will discuss six essential things Singaporean homebuyers should know about the US Fed interest rate cuts and how they can influence the property market in Singapore.

What are the predictions for US FED interest rates in 2024?

In 2023, inflation and interest rates have remained high. The US 30-year average mortgage rate, after staying around 8% for several weeks, dipped below 7% for the first time since August on December 13. This decrease brought the rate to 6.95%, marking a notable drop from its previous highs.

Historical rate hikes the in US Fed rates from 2022 to 2023:

FOMC Meeting DateRate Change (in basis points or bps)Federal Funds Rate
July 26, 2023+255.25% to 5.50%
May 3, 2023+255.00% to 5.25%
March 22, 2023+254.75% to 5.00%
Feb 1, 2023+254.50% to 4.75%
Dec 14, 2022+504.25% to 4.50%
Nov 2, 2022+753.75% to 4.00%
Sept 21, 2022+753.00% to 3.25%
July 27, 2022+752.25% to 2.50%
June 16, 2022+751.50% to 1.75%
May 5, 2022+500.75% to 1.00%
March 17, 2022+250.25% to 0.50%

Throughout 2023, the Fed has consistently halted its rate hikes, maintaining this stance during its September, November, and December FOMC meetings.

Based on the Fed’s 2024 interest rate forecast, there’s an expectation of three cuts in federal funds rate. Such cuts are likely to lower mortgage rates, encouraging potential buyers who’ve been hesitant to finally consider purchasing a home.

Additionally, these lower rates present a home loan refinancing opportunity for recent homeowners who initially secured loans at higher rates, potentially leading to significant savings through reduced mortgage payments. This financial relief may then be channelled into other investments or expenditures.

Should the 30-year average mortgage rate drop below 6% in 2024, it could greatly enhance housing affordability and alleviate the housing supply shortage. For instance, a reduction from 8% to 6% on a $300,000 loan could mean monthly savings of approximately $400, significantly easing financial burdens for homeowners.

US Fed Fund Rate 2022 to 2023

According to Trading Economics, the US federal funds rate is projected to trend around 4.75% in 2024 and 3.75% in 2025.

Why is the US Fed expected to cut interest rates in 2024?

The goal of the US Fed is to maintain a balanced US economy—neither too hot nor too cold, but just right. When the economy starts overheating—too much inflation—the Fed raises interest rates, and when the economy looks weak—high unemployment—the Fed cuts rates down.

The US Fed hikes or cuts the interest rates to stabilise the economy, keep inflation in check and keep growth on track.

The US Fed is expected to cut interest rates in 2024 primarily due to signs of easing inflation and a desire to support sustained economic growth. After a period of aggressive rate hikes to control inflation, there is a growing sentiment that inflationary pressures are moderating. Lowering interest rates would be a strategic move to prevent the economy from slowing down excessively.

This cautious approach aims to achieve a ‘soft landing’ where inflation is controlled without triggering a significant economic downturn. By reducing rates, the Fed intends to balance its dual mandate of maintaining stable prices and maximising employment.

How does the US Fed interest rate cuts affect Singapore?

The Singapore economy and financial markets is greatly affected by movements and changes in the US dollar. Since Singapore is a small and open economy, local banks, financial institutions and its central bank—the Monetary Authority of Singapore (MAS)—has adopted an exchange rate policy as its only monetary policy to maintain price stability.

Since interest rates in Singapore are determined by global interest rates, especially those of the US, rate cuts by the US Fed can lead to lower borrowing costs, thus resulting in a similar downward trend in Singapore’s home loan rates.

Since most floating rate packages in Singapore are pegged to the Singapore Overnight Rate Average (SORA), any change in the US Fed interest rates results in lower SORA rates.

Moreover, lower US interest rates can lead to a flow of capital into emerging markets like Singapore, seeking higher returns. This can strengthen the Singapore dollar, impact export competitiveness, and affect the country’s balance of trade.

Here’s a chart exhibiting a pretty clear correlation between the US Fed Rate and SORA, the benchmark for all home loans in Singapore.

SORA vs US Fed Graph

Fig 1. SORA and US Fed Rates

SORA vs US Fed Rate Trend 2023

Fig 2. 1M vs 3M vs 6M vs EFFR

The chart above shows the SORA (1-month, 3-month, and 6-month compounded rates) and the US Effective Federal Funds Rate (EFFR) from January 2022 to May 2023. It’s evident that although the EFFR influences the SORA in an increasing direction, there are no abrupt spikes whenever the Fed adjusts the rate.

The 3-month SORA is a prevalent benchmark by local banks offering floating rate packages in Singapore. The chart above also illustrates that although SORA closely tracks EFFR, their movements have not always been proportionate, particularly since November 2022.

This implies that with anticipated reductions in the EFFR in 2024, SORA is also likely to decrease, albeit to a lesser extent.

So, any future predictions?

It was earlier projected that 2023 will end with the US Fed rate between 5.50% and 5.75%, which means 0.5% higher than the July FOMC meeting’s target range. However, recent indicators suggested that economic growth has slowed down, job gains have moderated but remained strong, and the unemployment rate has remained low.

As a result, the US Fed unanimously voted to keep the federal funds rate steady for three FOMC meetings, in line with the expectations, to end the year in the same target range.

The Fed policymakers have indicated that interest rates will remain at higher levels for an extended period, possibly until at least 2024. However, they noted that the actual policy path will depend on how the economy evolves.

6 Essential Insights for Singaporean Homebuyers Regarding US Fed Interest Rate Cuts

Singaporean homebuyers are significantly influenced by the global reach of the US Fed’s interest rate policies. The expected rate cuts from the US Fed can considerably shape Singapore’s property market. Here are six key insights to help prospective homebuyers navigate these impacts:

1. Impact on Mortgage Rates and Borrowing Costs

When the US Fed starts to cut down interest rates in 2024, it can lead to more affordable borrowing not just in the United States but worldwide. This change can lead to lower borrowing costs for Singaporean homebuyers. Lower interest rates can reduce the cost of mortgages provided by local banks, easing the financial burden for both existing and new homeowners.

When the US Fed cuts down interest rates, local banks in Singapore usually follow the trend and lower their interest rates for mortgages and loans.

The Implication For Homebuyers

Implications of lower mortgage rates and affordable borrowing costs for Singaporean homebuyers are multifaceted and include:

i. Lower Monthly Mortgage Payments: Perhaps the most immediate consequence of cutting down mortgage interest rates on homebuyers in Singapore will be on the monthly mortgage payments.

For those with existing mortgages, a decline in mortgage rates can translate into reduced monthly repayment amount. Declining interest rates can result in decreased monthly mortgage obligations, making property purchases more affordable.

ii. Improved Affordability and Accessibility: Mortgage rate cuts can significantly affect the affordability of homes in Singapore. Lower borrowing costs can open the market to a broader range of buyers, making it possible for more people to purchase homes.

This environment is favourable for potential homebuyers, offering a prime opportunity for property investment amidst more manageable interest rates. Buyers should capitalise on this trend for long-term financial planning and property investments.

2. Affordability and Home Loan Eligibility

In 2024, with the anticipated stability and eventual decline in interest rates, the scenario for affordability and home loan eligibility in Singapore shifts positively. Lower interest rates potentially mean decreased mortgage rates, which can lead to:

i. Reduced Mortgage Rates and Monthly Repayments: As discussed earlier, the US Fed interest rate cuts can lead to lower mortgage rates. When these rates go down, homebuyers might see lower monthly mortgage obligations.

ii. Impact on Affordability: The direct implication of lower monthly repayments is a potential increase in the affordability of homes.

Consequences For Homebuyers

For Singaporean homebuyers, this trend can open up opportunities to consider a wider variety of homes without overstretching their budget. It also reduces financial stress associated with high mortgage payments, improving overall household financial health.

Consequently, this period could be ideal for potential homebuyers to enter the market, emphasising the importance of strategic financial planning in leveraging favourable market conditions.

In conclusion, the impact of US Fed interest rate cuts on home affordability is critical for homebuyers in Singapore. The interplay between mortgage rates, monthly repayments, and property choices underscores the importance of careful financial planning.

3. Impact on Property Financing and Loan-to-Value (LTV) Ratios

Dependency On Financing For Property Purchase

In 2024, with expectations of steady and then declining interest rates, the landscape for property financing in Singapore becomes more favourable. Homebuyers who rely on financing can anticipate more accessible loan conditions, making property acquisition more manageable.

Singaporean banks, in response to the global interest rate trends, may lower their lending rates, aligning with the downward shift in US interest rates. This change can make securing financing for property purchases more affordable for Singaporean homebuyers.

As a result, it’s a suitable time for buyers to explore their financing options and seek financial advice to align their property purchases with potentially lower interest rates.

The LTV And Rising Mortgage Rates

With the expectation of declining interest rates, the context for Loan-to-Value (LTV) ratios in Singapore’s property market changes in 2024. LTV ratios, which regulate the maximum loan amount relative to a property’s price, play a crucial role in managing debt levels for homebuyers.

Lower interest rates could ease financial burdens, making it easier for buyers to manage loans within these LTV constraints. This change might encourage more people to enter the property market, offering a healthier balance between debt management and property acquisition.

Consequences For Homebuyers

In 2024, the landscape for homebuyers in Singapore shifts with interest rates expected to stabilise and then decline. Lower interest rates could lead to less stringent LTV ratios, easing the burden on homebuyers. This change may allow buyers to secure loans with smaller down payments, increasing their financial flexibility.

Consequently, homebuyers could explore a wider range of property options within their budget, including choices about location, property type, and size. The anticipated decline in interest rates could enhance overall affordability, making the property market more accessible. Homebuyers should stay informed about these changes to navigate the market effectively.

In conclusion, the impact of US Fed interest rate hikes on LTV ratios in Singapore is a vital consideration for homebuyers. They should understand the implications of potential changes in LTV ratios and prepare accordingly. It helps homebuyers navigate these challenges and make informed financing decisions when entering Singapore’s dynamic property market.

4. Impact on Foreign Property Investment Opportunities

Understanding how the US Fed interest rate cuts can impact currency exchange rates is crucial for Singaporean investors eyeing properties abroad.

In 2024, investment opportunities, particularly in property market, could become more attractive with the anticipated interest rate cuts. Lower rates generally lead to reduced borrowing costs, making property investment more financially viable. This environment could encourage both seasoned and new investors to enter the market or expand their portfolios.

The anticipated lower rates may boost the property market’s liquidity, potentially increasing property values over time. Investors could benefit from both rental yields and capital appreciation. However, as with any investment, it’s crucial to consider the broader economic context, including the local property market’s supply and demand dynamics, and potential regulatory changes.

The Dynamics of Global Currency

Lower US interest rates typically lead to a weakening of the US dollar (USD) against other currencies. For Singaporean investors looking to invest in properties priced in USD, this could be beneficial. A weaker USD means when converting Singapore Dollars (SGD) to USD, investors might receive more USD per SGD, potentially reducing the overall cost of foreign property investments.

This scenario can offer more favourable conditions for investing in international real estate markets.

Consequences For Homebuyers

In 2024, the situation for Singaporean homebuyers looking at foreign property investments could become more favorable. A decrease in US interest rates typically weakens the USD, making properties priced in USD more affordable for buyers using SGD.

Moreover, if the USD remains relatively weak during the investment period, the return on investment, when converted back to SGD, might be more favorable than in a period of a strong USD. Consequently, the changing currency dynamics due to US interest rate shifts should be a crucial factor in the financial planning and risk assessment of Singaporean investors considering overseas property markets.

5. Economic Growth and Job Market Stability

In 2024, with the US Federal Reserve expected to lower interest rates, Singapore’s economy, closely intertwined with global markets, could see notable impacts.

US Fed’s Role In Economic Control

Lower US interest rates aim to stimulate their economy, potentially leading to increased consumer spending and economic growth. For Singapore, this could mean a positive spillover effect, potentially bolstering its own economic health and job market.

Lower US rates can also ease global financial conditions, which might benefit Singapore’s export-driven economy. However, these benefits can be tempered by the broader global economic context and Singapore’s domestic policies. The Fed’s role in managing inflation and stabilising the US economy remains a key factor influencing Singapore’s economic outlook.

Impact On Job Creation

Lower interest rates often stimulate economic activity, which can lead to increased business investments and hiring. This potential boost in economic activities in the US could positively affect employment opportunities both in Singapore and internationally.

An invigorated US economy might create a demand for more labour, which could extend to markets closely linked to the US, including Singapore. This scenario presents a potentially favorable outcome for job creation and employment stability.

Consequences For Homebuyers

The overall health of the job market and the economy is a key driver of property demand. A stable job market and robust economic conditions generally encourage property purchases.

In 2024, with declining US Fed interest rates, the impact on Singaporean homebuyers could be quite positive. Lower interest rates generally lead to improved economic conditions, which can bolster the job market and, in turn, stimulate the property market.

A robust job market and favorable economic climate typically encourage property purchases. Moreover, an upbeat economic scenario can result in increased property demand, potentially influencing property prices positively.

Therefore, it’s important for Singaporean homebuyers to stay informed about economic trends, both domestically and globally, as these factors can significantly affect property investment decisions and broader financial planning.

6. Investment Alternatives and Diversification

As the US Fed interest rates start to decline, they could trigger a reevaluation of investment strategies among Singaporean investors, potentially reshaping the property market landscape.

The Diminishing Charm of Bonds and High-Yield Savings Accounts

As seen in 2023, in a rising interest rate environment, alternative investments such as bonds or high-yield savings accounts became more very attractive. As the Fed rates go down, so may the interest on your savings. In 2024, it may be better to invest in the stock market or lock in rates with CDs (certificate of deposit).

Once the Fed begins cutting rates, the prices of high-quality corporate bonds are expected to recover strongly. The rate cuts could also benefit stocks in the short-term.

As fixed-income investments may offer lower returns than real estate when interest rates go down, some Singaporean investors may consider diverting their funds from fixed-income investment into the property market.

This shift in investment preferences can influence property market dynamics. Real estate may become more competitive as an investment option compared to other asset classes, potentially leading to a higher demand and rising property prices. While this may incentivise more people to put their homes on the market, it could pose some challenges for those looking to buy property.

Diversification As A Strategy

With US Fed interest rates expected to decline, the strategy of diversification remains vital for investors in 2024. Diversification, the practice of spreading investments across various asset classes to reduce risk, becomes particularly relevant in a potentially shifting investment landscape.

Even with lower interest rates potentially making certain investments more attractive, maintaining a diversified portfolio helps balance risk and reward. Singaporean investors should continue to align their investments with their long-term financial goals, balancing their real estate investments with other asset classes.

Staying informed about property market trends and broader economic indicators remains crucial. Consulting with financial experts can also be invaluable in adapting investment strategies to evolving market conditions, ensuring a well-rounded and resilient investment portfolio.

Final Thoughts

The US Federal Reserve interest rate decisions have a far-reaching impact on the global economy, including Singapore’s property market. Singaporean buyers need to understand how US Fed interest rate cuts affect their mortgage rates, affordability, eligibility for home loans, and investment decisions.

At Dollarback Mortgage, we understand that navigating the intricacies of the property market can be daunting, especially with the influence of US Fed interest rate hikes. Our dedicated mortgage specialists are here to simplify the process for you, providing expert advice and helping you compare the lowest housing loan interest rates in Singapore.

Get the best home loan in Singapore across all major banks and compare mortgage rates with the highest rewards.

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