Dollar depreciation may trigger slowdown in housing market

The ratio of HIBOR-linked new mortgage loans on floating rates has dipped to 86.2% in January.

As the Hong Kong dollar plunges to a thirty year low after approaching $7.83/USD level last Tuesday, the red-hot housing market may take a hit in the coming months, according to BMI Research.

“In our view, rising interest rates are likely to be negative for the SAR’s sky-high housing market, which has benefitted from years of artificially low interest rates and cheap credit brought about by the US Federal Reserve’s quantitative easing programme,” the report noted.

The ratio of new mortgage loans priced on floating interest rates linked to HIBOR is showing signs of wearing down after dipping from 89.8% in December to 86.2% in January amidst higher interest rates.

“Whilst our core view is for the housing market to moderate, rather than collapse, we note that this group of borrowers will be increasingly vulnerable in the event of a sharp negative price shock, leading to a rise in the mortgage delinquency ratio,” the report added.