The U.S. Federal Reserve announced on 18th September that it has cut interest rates by half a percentage point, or 50 basis points, to support economic growth. This reduction could have broader implications for global markets, including Singapore. Lower borrowing costs may provide relief for homeowners and potentially drive increased demand in the property market. And as mortgages become cheaper, more buyers might be encouraged to enter the market, which could stimulate property sales.
The past 4 years of the US federal funds rate
| Federal Open Market Committee (FOMC) Meeting Date | Rate Change (bps) | Federal Funds Rate |
|---|---|---|
| 18 Sep 2024 | -50 | 4.75% to 5.00% |
| 26 Jul 2023 | +25 | 5.25% to 5.50% |
| 3 May 2023 | +25 | 5.00% to 5.25% |
| 22 Mar 2023 | +25 | 4.75% to 5.00% |
| 1 Feb 2023 | +25 | 4.50% to 4.75% |
| 14 Dec 2022 | +50 | 4.25% to 4.50% |
| 2 Nov 2022 | +75 | 3.75% to 4.00% |
| 21 Sep 2022 | +75 | 3.00% to 3.25% |
| 27 Jul 2022 | +75 | 2.25% to 2.50% |
| 16 Jun 2022 | +75 | 1.50% to 1.75% |
| 5 May 2022 | +50 | 0.75% to 1.00% |
| 17 Mar 2022 | +25 | 0.25% to 0.50% |
| 16 Mar 2020 | -50 | 0% to 0.25% |
| 4 Mar 2020 | -50 | 1.0% to 1.25% |
5 possible changes to Singapore property buyers and sellers following the U.S. Fed’s half-point interest rate cut
- Lower mortgage rates, lower borrowing costs
- Increase in property demand as borrowing becomes cheaper
- Rise in property prices due to higher demand
- Sellers’ gain from increased buyer interest
- Economic uncertainty leading to increased volatility
1. Lower mortgage rates, lower borrowing costs
Mortgage rates in Singapore are indirectly influenced by U.S. Federal Reserve decisions. Singapore’s banks typically adjust their rates based on global financial trends, and a Fed rate cut usually results in lower borrowing costs locally. Homeowners with floating-rate mortgages, tied to benchmarks like the Singapore Overnight Rate Average (SORA), are likely to see a reduction in interest rates, leading to lower monthly mortgage payments.
For new buyers, the lower rates may make purchasing property more affordable. A rate cut of 0.25 or 0.50 percentage points could be particularly beneficial for first-time buyers and those looking to refinance their mortgages. These lower rates could increase access to financing, which could boost interest in property purchases across different segments of the market.
2. Increase in property demand as borrowing becomes cheaper
Lower mortgage rates generally encourage buyer interest as the cost of homeownership goes down. A Fed rate cut, especially a large one, could stimulate demand for residential properties in Singapore. Buyers may rush to take advantage of the lower rates, particularly if they anticipate rates may rise again in the future. This influx of demand could heighten competition for properties, driving up prices in popular areas, especially in high-demand districts like luxury or prime residential zones.
However, this increased demand must be balanced against broader economic factors. If there are lingering concerns about the global economy, such as inflation or slower growth, the anticipated rise in demand may not materialise as strongly. In uncertain times, investor sentiment can be volatile, potentially tempering the expected boom in property transactions.
3. Rise in property prices due to higher demand
If demand for property grows due to more affordable borrowing, prices could experience upward pressure. Sellers, seeing increased interest from buyers, may raise their asking prices to take advantage of the favourable market conditions. This may be more pronounced in areas where demand outstrips supply, such as prime residential and luxury markets.
Not all segments of the property market will react in the same way. While high-demand residential areas may see immediate price increases, other sectors — such as commercial properties or less sought-after districts — may experience more moderate changes. These variations depend heavily on how global economic trends evolve in response to the rate cut and other factors such as employment and inflation.
4. Sellers’ gain from increased buyer interest
For property sellers in Singapore, a Fed rate cut could lead to a favourable period as buyer interest rises. Increased affordability for buyers often leads to more competition for available properties, which allows sellers to secure higher offers. This shift could create a seller’s market, especially in segments where inventory is limited, giving sellers leverage to negotiate better prices.
That said, sellers must monitor global economic signals carefully. While a Fed rate cut generally spurs buying activity, ongoing concerns about inflation or a potential economic slowdown could limit long-term demand growth. Sellers may benefit in the short term, but the broader outlook remains cautious.
5. Economic uncertainty leading to increased volatility
Despite the optimistic outlook a rate cut may bring, there are risks. Global concerns such as slowing economic growth or persistent inflation could lead to increased volatility in the property market. Investors may hesitate to make large financial commitments until they have a clearer understanding of how the global economic landscape may evolve.
Additionally, the anticipated increase in demand could exacerbate Singapore’s existing housing supply constraints, particularly in high-demand areas. This could drive prices higher, making affordability more challenging in the long run for many potential buyers. An overheated market could also pose risks of a future correction if property prices rise too quickly in response to the demand surge.
Prepare for a shifting property market
As always, the broader economic environment will play a critical role in determining the full impact of the U.S. Federal Reserve’s rate cut. While lower interest rates may offer some relief for borrowers, the overall effect will depend on various interconnected factors. For instance, persistent inflation or rising costs of living could erode the benefits of lower borrowing rates, making it harder for buyers to capitalise on cheaper loans.
Similarly, if economic growth remains sluggish or uncertainty about global markets continues, consumer confidence and investment activity may not rise as expected. Other factors like employment rates, geopolitical tensions, and financial market performance will also shape how much of the rate cut’s intended benefits are felt in Singapore’s property market. It’s important to remain cautious and consider that these broader forces may temper or amplify the impacts of the Fed’s decision.
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