Rising interest rates may not stop home prices from rising

by Albert02

Rising interest rates may not stop home prices from rising

Rising interest rates may not stop home prices from rising. Property cooling measures implemented in mid-December 2021 appear to be short-lived. The Urban Redevelopment Authority’s flash estimate of private home prices for Q2 2022 showed a 3.2 percent quarterly increase, compared to a 0.7% increase in Q1 2022. Private home prices increased 10.3% year on year.

Property consultants CBRE and Huttons have raised their private home price growth forecasts for 2022 from 3% to 5% and 8%, respectively.  However, with rising mortgage interest rates, homeowners and first-time home buyers may be in for a bumpy ride. The Federal Reserve of the United States raised its benchmark interest rate by three-quarters of a percentage point in mid-June to combat rising inflation. The Federal Reserve is widely expected to raise interest rates once more.

In late June, DBS raised its rates on 2- and 3-year fixed-rate home loan packages to 2.75 percent per annum. The bank charged 1.65 percent for a two-year fixed rate loan and 1.85 percent for a three-year fixed rate loan about three months ago. Meanwhile, UOB raised the interest rate on its 3-year fixed rate home loan package to 3.08 percent per annum in June. While rising home loan rates are a significant headwind for the private housing market, some homeowners and potential buyers may experience little impact.

There are cash-rich individuals who do not take out home loans. This includes those who benefit from successful en-bloc sales, those downsizing from larger homes, and those who buy homes for their children, including those who use trusts to do so. Furthermore, some existing homeowners may have locked in fixed rates of less than 2% per year for a period of time or made capital repayments on their loans.

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