Is the Bank of Israel concerned about a renewed rise in home prices, and is it about to take additional steps to restrain the real estate market? For the first time in seven months, the Bank of Israel has not ruled out taking additional macro-prudential measures through the mortgage market to lower home prices - i.e. restricting mortgages - according to the minutes of the monetary council meeting in late March to decide on the interest rate for April, which were published today.
The Bank of Israel notes, "Home prices, which are published in the Central Bureau of Statistics survey of home prices but are not included in the CPI, increased in December-January by 0.1%, the second consecutive increase after three months in which the cumulative decline was 1.4%. In the twelve months to January, home prices increased by 4.5%, continuing the marked slowdown from the rates recorded in previous months."
It adds, "The moderation in the growth rate of home prices in recent months comes against the background of continued growth in the number of building starts, the lagged effect of the increase in the interest rate, measures introduced by the Bank of Israel affecting mortgages, and steps taken by the Ministry of Finance in real estate taxation. These moves, together with land marketing efforts by the Ministry of Construction and Housing and the Israel Land Administration, are expected to continue to have an effect in the future. Nonetheless, with regard to home prices, the possibility of additional macro-prudential measures was considered."
It may be premature to declare that here will be new mortgage restrictions by the Bank of Israel, but in the interest rate decision for April it is certainly possible to discern a change in the central bank's outlook: it is no longer confident about a declining trend in home prices, and is worried that prices will again rise, and so it has left open the option of again intervening in the mortgage market if necessary. The minutes of the monetary council meetings of the past few months show no sign of concern about rising home prices.
The Bank of Israel states that the balance of outstanding housing credit to households rose by 0.2% in January, to NIS 259 billion. It adds that total mortgages granted in the twelve months through February was 2.3% lower than mortgage granted in the twelve months through January, continuing the decline from the peak level in May.
Published by Globes [online], Israel business news - www.globes-online.com - on April 9, 2012
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