The year 2021 was significant for the construction industry in Jamaica. The sector grew by 9 per cent; specifically, the sale of cement in real terms grew by 17.4 per cent, with employment increasing by 16.1 per cent to 199,000 (Jamaica Economic Survey of Living Conditions, 2021). There is no denying that the main driver for these levels of increased activities within the sector was the low-interest rates that gave people the ability to purchase homes.

Mortgage lending increased for the National Housing Trust (NHT), the commercial banks, and the building societies. Mainly since the Bank of Jamaica’s (BOJ) three-month treasury bill rate in August 2021 was 0.88 per cent. One year later, it is now 7.64 per cent, with the nine-month treasury bill rate being 8.42 per cent (www.boj.org.jm).

Therefore, if you had applied for a mortgage last year, you would have received a relatively low rate. Banks viewed mortgage lending as a secure and profitable investment, lending between 3 per cent to 5 per cent above the Government’s three-month treasury bill rate. They chose this alternative rather than simply lending the government at 0.88 per cent.

If the same 3 per cent to 5 per cent spread were applied to August 2022, we would see a mortgage rate of anywhere between 11.5 per cent to 13.5 per cent.

What does all of this mean? For example, if you had a $20-million mortgage last August, the salary needed to qualify would have been roughly $4.8 million. However, this August, the impact of increased interest rates will add approximately $1.4 million more in interest, making the qualification salary nearly twice the amount using a similar multiple.

It’s a global reality

This reality, however, is not unique to Jamaica. For example, in one year US mortgage rates climbed to 5.81 per cent on June 23, 2022 from 2.75 per cent. As a result, US home sales fell in July for the sixth straight month — the most extended period of decline in more than eight years.

“We are in a housing recession that is hurting potential buyers while benefiting existing homeowners, many of whom locked in their mortgages at lower rates.” (Lawrence Yun, August 18, 2022)

Moreover, homebuyers in the US are reneging on their contracts “roughly 63,000 home purchase agreements fell through in July, which equals 16.1 per cent of homes that went under contract”. (Charles Schwab & Co July 2022).

This represents one out of every six contracts cancelled. To complicate the situation, “20 million Americans are behind on utility bills as inflation spikes”. (Bloomberg Opinion, August 24, 2022)

They are describing the current situation in almost one out of every six homes whose amounts owing to utility companies have doubled since before the pandemic, the highest number in recorded history.

Over in the United Kingdom, some analysts declare that their energy crisis is “bigger than the pandemic. The average annual bill currently stands at £1,971 (US$2,318) — up 54 per cent so far this year — but is forecast to shoot past £3,500 (US$4,117) when the upper price limit is fixed Friday for the last three months of this year. The average household could be paying as much as £6,433 ($7,579) a year for natural gas and electricity next spring if the government doesn’t intervene.” (CNN Business, August 24, 2022)

In China the situation is even worse. According to China Real Estate Information Corp, more than 30 Chinese property developers (including the property giant China Evergrande Group) have since defaulted on their international debt as the sale of apartments in China plunged for 13 consecutive months. Furthermore, Bank of America reported that approximately “9 per cent of the housing floor space that was presold in 2020 and 2021 risks not being completed on schedule because of developers’ financial troubles, affecting nearly 2.4 million households” (The Wall Street Journal, August 24, 2022).

Here at home, with inflation running close to 11 per cent, and the BOJ treasury rate increasing by 700 per cent (within the last year), the housing bubble in Jamaica is not sustainable and is likely to burst.

Some may recall the 2008 financial meltdown caused by defaulting mortgages packaged and resold worldwide. They were classified as “NINJA loans” sold to people without income or jobs as purchasers rode the housing speculation wave funded by cheap money, with low mortgage rates, which would reset to market rates within two to three years. However, it all came to a crashing end immediately as the mortgages were readjusted to market interest rates, and most loans defaulted.

No J’can should lose their home

To sustain a housing boom people’s salaries must either increase with inflation or grow with the mortgage rate increase. But, as we are all aware, that’s not happening. Jamaican public sector workers are fighting to keep their little benefits, and salary increases have mostly been insignificant — in the single digits as daily living expenses are out of control.

The term global recession is now mentioned daily in every financial report and I bet we will be in the middle of one within the next six months. The implication of a global recession on Jamaica translates to job losses, fewer tourists, fewer remittances, and fewer foreign direct investments, all of which we are highly dependent on to keep our economy growing.

The outlook is not good on the horizon. On a personal level, it’s time to focus on savings to weather these difficult times and postpone any new investments or unnecessary spending.

On the other hand, the Government needs to be far more proactive. First, there should be a temporary freeze on any increases in National Housing Trust (NHT) interest or mortgage rates, with the excess NHT funds at their disposal, short-term, low-interest rates should be made available to families with difficulty meeting their increased mortgage payments. No Jamaican should lose their home because of the other external crises they may be facing.

In addition, a national programme for residential solar energy for communities and individuals should be funded by creating a “National Energy Fund” for this purpose. This fund could be financed through the diaspora, the National Insurance Scheme (NIS), NHT, and other surplus funds sitting in government agency accounts.

The chairman of the US Federal Reserve Jerome Powell got it wrong last year by saying “inflation was transitory”. Now the US is scrambling to fix it. In the face of these certain realities, we must be proactive and lead; not sit and wait for people to become homeless.

Lisa Hanna is Member of Parliament for St Ann South Eastern, People’s National Party spokesperson on foreign affairs and foreign trade, and a former Cabinet member.