Mortgage Rate Hike?

Bank Indonesia 7-day repo rate and the Federal Reserve Fund Rate climbed significantly since 2022, denoting an increase in monetary policy interest rates with minimum hope of rate cut.

This upward trajectory was attributed to various factors, i.e. inflationary pressures, economic growth, employment levels, etc. The rate hike was undoubtedly inevitable if we look back to the macroeconomics data at the time.

Fed Funds Interest Rate (%)

Source: Trading Economics

The reasons behind the surge of these rates would likely involve an assessment of prevailing economic conditions and the necessity to address emerging challenges or align policy with established objectives.

BI 7 Days Repo Rate (%)

Source: Kontan

Considering this condition, we suggest investors to remain cautious on Mortgage rate in the coming 3-6 months. We noted that BI Rate have risen since end of 2022, while mortgage rate has remain to decline. Our analyst's, Niko, did correlation study which indicates:

1. Correlation between Mortgage rate and BI rate shows that typically mortgage rate is adjusted within 18months after the first BI Rate hike (73.5% R-square)

2. We observed a spike in BI Rate between 9M22-3M23, which may increase mortgage rate within the coming 3-6 months

3. Using the regression equation between Mortgage Rate and BI Rate with 18 months Lag, we have found that Mortgage rate could potentially increase to 9.4% from the current 7%.

That said, given the current 78% of house buyers are end-users. We believe All time highs marketing sales from the Big 4 property developers will remain sustainable with Bogor in our view being the most prospective area within the Jabodetabek Area.

Adding the cherry on top, BI rate now have a higher chance to go lower going forward as ECB confirmed that they are cutting the key rate by 25bps to 3.75%. Hence, we believe this could be a headwind for the property sector and a positive sentiment that invetors had longed for a very long time. All in all, mortgage rate remains on a thin ice of going up unless the Fed and Bank Indonesia follows ECB footsteps.