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When Will Mortgage Rates Go Down in Singapore 2024 (Forecast)

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In 2024, the focus shifts from whether mortgage interest rates will go down to when they will drop. After experiencing high rates for an extended period, Singaporean homeowners and potential buyers are keenly awaiting relief through rate reductions.

The rapid rise in home loan rates during 2022 and 2023, coupled with persistent high inflation, has dampened buyer activity. While a reversal in the interest rate trend is anticipated this year, the exact timing remains uncertain.

Understanding mortgage rate trends is essential for financial planning in today’s complex economic environment, influenced by a mix of local and global factors.

Contents:

Why were interest rates so high in 2023?

As reported by Freddie Mac, by mid-December 2023, average rates in the US for 30-year mortgages dipped below 7% for the first time since August. Although this decrease offers some relief to homebuyers and those looking to refinance home loans, these rates were still about 4% higher compared to the same period in 2021.

So, why interest rates were so high in 2022 and 2023 in Singapore? Interest rates were high primarily due to aggressive actions by the Fed and other central banks in an effort to curb high inflation which impacted home loan rates.

The Fed initiated rate hikes in March 2022 to reduce inflation and stabilise the economy, leading to increased borrowing costs, including mortgage rates. Other mitigating factors, including rising bond yields, global uncertainty, and the overall economic climate contributed to these high rates.

In addition to potential future actions by the US Fed, these factors are also expected to influence mortgage rates into 2024.

How do the US Fed’s policies impact Singapore’s mortgage rates?

The US Fed’s interest rate policies significantly influence Singapore’s mortgage rates. As global financial markets are interconnected, adjustments made by the Fed to control inflation and manage economic growth impact worldwide borrowing costs.

Since Singapore has a compact and open economy, it is sensitive to notable shifts in global interest rates. Consistent rate hikes to curb rising inflation prompted central banks worldwide, including the Monetary Authority of Singapore(MAS), to adopt an assertive monetary tightening policy.

It led to changes in the Singapore Overnight Rate Average (SORA) benchmark interest rate, which is crucial in determining local mortgage rates. Consequently, rate hikes by the Fed typically lead to similar shifts in the SORA rate, affecting mortgage rates in Singapore.

This direct relationship highlights the considerable influence of US monetary policy on Singapore’s financial market, impacting homeowners and potential buyers.

Federal Pauses Interest Rate Hikes Again: Potential Impact on Mortgage Rates

Following a series of substantial rate increases, the US Fed has held the federal funds rate steady at 5.25% to 5.5% since July 26. The Fed has maintained its key interest rate at the same levels at its November, September and December 2023 FOMC meetings.

This pause in aggressive inflation control measures hints at a possibility that interest rates may have peaked for this cycle. Such a change is poised to favourably impact the housing market by potentially bringing down mortgage rates and offering relief for home buyers and those looking to refinance.

The Fed Meeting Calendar for 2024

In 2024, the Fed is scheduled to hold its customary eight meetings to review and decide on interest rates. These meetings, spanning two days each, will conclude with announcements on interest rate decisions.

The key dates for these announcements in 2024 are January 31, March 20, May 1, June 12, July 31, September 18, November 7, and December 18. These dates are pivotal for investors and the financial market, as they provide insights into the Fed’s monetary policy direction and its impact on the economy.

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How far could interest rates drop in Singapore 2024?

Economists anticipate that any decline in interest rates from their current levels will likely be slow and won’t reach the particularly low rates seen before May 2022. However, there is no consensus among them regarding how deep or extensive the rate cuts might be in the next year.

Opinions among experts vary regarding the timeline for interest rate cuts in the coming year. While some are optimistic, expecting rate reductions to begin around mid-next year, others foresee interest rates maintaining their current levels for most of 2024.

Consequently, this divergence in views suggests that mortgage rates might remain relatively unchanged for several months, with a potential decrease not anticipated until late 2024.

Members of the US Federal Reserve have forecasted that potential reductions in interest rates might commence from mid-2024. These cuts are expected to occur gradually, on a quarterly basis.

As a result, mortgage rates are likely to be adjusted in response to these anticipated changes in federal interest rates and we could see SORA interest rates (the market benchmark rate) in Singapore fall by approximately 0.75% by the end of 2024.

Mortgage Rates Predictions for 2024

For 2024, forecasts suggest a possible decline in mortgage rates in Singapore. This trend is influenced by factors like the US Federal Reserve’s interest rate policies and the state of Singapore’s economic conditions.

Initially, the Fed suggested rates would peak at 5.1%, then decrease to 4.1% in 2024 and further down to 3.1% by 2025, potentially stabilising Singapore’s SORA around 3.5%. However, recent “dot plot” chart median projections have indicated a median rate of 4.6% by the end of 2024, a reduction of three 25-basis-point cuts from the current range, with further cuts expected in 2025.

The Fed’s latest forecast from its December FOMC meeting suggests a shift towards a more dovish stance as inflation shows signs of easing.

Despite these projections, market sentiment is sceptical, with expectations of more substantial rate cuts than the Fed anticipates. This scepticism is rooted in the perception that the Fed often lags in its policy decisions due to its reliance on historical economic data. As a result, financial institutions, including Goldman Sachs, JPMorgan and many others, forecast more aggressive rate reductions.

Goldman Sachs predicts three consecutive 25-basis-point cuts in the first half of 2024, leading to a terminal rate of 3.25% to 3.50%, while JPMorgan foresees the initial rate cut in June, with a total reduction of 125 basis points by year-end. Macquarie presents an even more assertive outlook, anticipating a total of 225 basis points cut, equivalent to nine 25 basis-point reductions.

These varied projections reflect a broader uncertainty and diverse perspectives on the future of interest rates. The differing forecasts underscore the complexity of predicting economic trends and the impact of global monetary policies.

With so much uncertainty on the cards, potential and current homeowners are advised to exercise caution with their mortgage arrangements and seek advice from mortgage experts to secure the best home loan rates.

Impact on Homebuyers and the Real Estate Market

In 2024, anticipated shifts in mortgage rates can notably affect the Singapore housing market. A decline in rates could enhance home affordability, leading to a surge in demand. This increase in demand may energise the real estate market and potentially escalate property prices.

Later in 2024, the potential for lower mortgage rates could offer refinancing opportunities for existing homeowners, possibly leading to reduced monthly payments.

Prospective buyers are advised to stay informed about rate trends and the broader financial market, carefully assessing long-term affordability before making commitments. It is crucial to seek personalised financial advice in this fluctuating interest rate environment. The key question remains: when exactly will these rate cuts occur?

When exactly will interest rates go down in 2024?

As we venture into 2024, the interest rates are at a 22-year high in the target range of 5.25% and 5.50%. When the rates hit the imminent peak, they are anticipated to stabilise and decrease from the high. The uncertainty lies in the timing of this decrease, largely dependent on inflation and mortgage rate trends.

The Fed plans to cut the federal funds rate next year, which could lead to lower mortgage rates in Singapore. Lower mortgage rates are likely to enhance affordability for borrowers, which could spur increased demand in the housing market. This growing demand may result in elevated home prices and potentially drive them higher.

Although the Federal Reserve hasn’t dismissed the possibility of further rate increases if inflation doesn’t consistently decline, there’s increasing optimism in the market that inflation is stabilising towards the Fed’s 2% annual target.

Consequently, many in the financial markets do not foresee additional rate hikes and are expecting the initial rate reduction to happen as early as March 2024. This interplay between managing inflation and adjusting interest rates is crucial for understanding the potential direction of rate movements in 2024.

The prevailing expectation is that interest rates will remain elevated for an extended period, suggesting that mortgage rates might hover near their current levels for some time. Such a scenario indicates a gradual economic adjustment, stretching the timeline for financial normalisation.

However, some analysts speculate that if there are clear signs of winning the battle against inflation, particularly in the midst of economic softness in mid to late 2024, the Federal Reserve might opt for more aggressive interest rate cuts than currently anticipated.

Key Indicators for Predicting Mortgage Rate Changes

According to experts, these are the three signs that could signal a drop in mortgage rates in 2024:

1. Federal Reserve’s Interest Rate Decisions:

Industry experts suggest closely monitoring the Fed’s policy moves in 2024. Although the Fed doesn’t directly set mortgage rates, its decisions on interest rates have a significant influence. If the Fed implements rate cuts, this could lead to a reduction in mortgage rates.

2. Inflation Trends:

Inflation is a key factor in the Fed’s monetary policy decisions. A decrease in inflation or signs of an economic slowdown might prompt the Fed to lower interest rates to stimulate economic activity. Observing inflation trends through the Consumer Price Index (CPI) is crucial. If CPI reports show positive trends in early 2024, the Fed may consider moderate rate reductions, influencing mortgage rates.

3. Bond Market Dynamics:

The bond market, including mortgage-backed securities (MBSs) and government or corporate bonds, is crucial in determining mortgage rates. When bond yields fall, lenders often reduce mortgage rates to remain competitive. Additionally, global economic events can influence investor confidence, affecting bond markets and, subsequently, mortgage rates.

Monitoring these key indicators can help provide insights into potential mortgage rate movements. However, trends can change, so it is essential to be aware of the possibility of unforeseen developments in an evolving economic landscape.

Final Thoughts

It’s impossible to predict with certainty what will happen with mortgage rates in 2024. We anticipate a gradual downward trend in rates in the upcoming years, and the mortgage rates won’t return to 2021 levels anytime soon.

The mortgage rates are more likely to fall in the latter part of 2024 as the effects of the Fed’s rate hikes dissipate and inflation eases. However, opinions vary, with some experts expecting rate decreases as early as mid-2024, while others foresee them towards the year’s end.

With inflation still above the Fed’s 2% target, immediate rate cuts in Singapore appear unlikely. Fortunately, the likelihood of further rate increases also seems low at this stage.

When considering home purchases, refinancing, or property investments, it’s essential to proceed with caution. Consider purchasing your home now with an eye toward refinancing later and making a larger downpayment to reduce your monthly payment. Research home loan options and understand their fit with your personal needs.

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

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