Would a temporary mortgage rate cut fit the bill?
► Clearly the overseas nvestor commun ty s ask ng for a rate h ke of at least 200 bas s po nts. They also demand that monetary pol cy be conducted ma nly through the pol cy rate, and not v a the late l qu d ty w ndow that can change overn ght.
► However, there already ex sts an automat c slowdown that w ll set n, poss bly becom ng v s ble n Q3. Th s s a good th ng because otherw se ncent ves would be kept rampant, and the current account def c t would soar h gher.
► “Ra se the rate, cut the f scal mbalance, help the economy cool off so there won’t be talk about ‘overheat ng’ w th all the nefar ous s de effects t br ngs about.” Th s s the rec pe of the nvestor commun ty. ► Nonetheless, cool ng off s a r sky bus ness that presents ts own p tfalls. The hous ng market s now mov ng along the downward port on of the pr c ng curve. Ne ther sales nor pr ces – nor rents - look good. It s the locus class cus of 8 out of 10 U.S. recess ons after WWII and Turkey, mutat s mutand s, has excess vely nvested n construct on over the last decade.
► Here enter the mortgage rate cuts. W ll they make a d fference and for how long? The average 10-year (annual) mortgage rate was 11.93 percent n January 2017, and t s 14.92 percent now. Ord nar ly that makes a huge d fference because anyth ng around one percent monthly works n the local market.
► Nevertheless, n 2017 there was the Cred t Guarantee Fund and mortgages skyrocketed n the f rst 5 months + July. St ll, there are other factors at work. The hedon c pr ce ndex for Istanbul only rose by 3.98 percent over the last 12 months and as such t can’t compete w th depos t rates as an nvestment tool. ► Mortgages have been curta led by 35 percent over the last year, and the 35 percent mortgage rate cut – a move that w ll have negat ve f nanc al consequences obv ously- m ght work. It may not exactly ‘do the tr ck’ unless pr ces and rents are ant c pated to head north. In the absence of a pr ce recovery, the hous ng market m ght heat up a b t, but the rel ef can only be temporary. St ll the dea s obv ous; ra se the fund ng rate f you must but cut the mortgage rate so you can help the real estate market. A strange m x, adm ttedly.