The Bank of Israel believes that home prices will not continue to rise even if it changes monetary policy and cuts the interest rate, because of the mortgage restrictions imposed by the Bank of Israel and measures taken by the Ministry of Finance to encourage real estate investors to sell second hand apartments.
In the protocols of the narrow monetary forum meeting, which decided to keep the interest rate for September unchanged, the Bank of Israel states, "On the issue of home prices, it was noted that in the event of a change in direction in the interest rate, the macro-prudential measures taken by the Bank of Israel are expected to continue to moderate demand for housing. Nonetheless, if necessary, other measures will be taken."
The Bank of Israel adds that home prices rose by 0.7% a month in May through June. "The annual rate of increase in home prices continues to be high, but declined slightly for the second consecutive month, and in the twelve months ended in June house prices increased by 12.5%; compared with a 13.9% increase in the May. The slowdown in the rate of increase in home prices was influenced by 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, together with the continued increase in the number of building starts, and these factors are expected to moderate home price increases in the course of the coming year."
The housing index (rent), which is included in the CPI, rose by a further 0.4% in June and by 5.6% over preceding 12 months.
In view of the global economic situation, particularly the debt crisis in Europe, the Bank of Israel does not rule out future interest rate cuts. A decision to cut the interest rate will be facilitated by the fall in inflation and in inflation expectations, especially a slower rise in home prices.
Published by Globes [online], Israel business news - www.globes-online.com - on September 12, 2011
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