Bank of Israel expects house prices to continue rising over the coming year, albeit, at a more modest pace. This prediction was presented by the Bank of Israel during the monetary discussions last month, when the central bank surprisingly decided to raise the interest rate by 25 basis points to 1.75%. All the members of the committee recommended to Bank of Israel Governor Prof. Stanley Fischer to raise the interest rate, mainly because of the sharp rise in house prices and rents.
The Bank of Israel's management also discussed the rise in inflation expectations above the top range of the government's target because of the sharp rise in housing prices, which comprises 21% of the Consumer Price Index (CPI). The Bank of Israel is concerned about the continuing rise in apartment prices and tried to cool off the market by raising interest. The effectiveness of this measure will be tested in the coming months.
In this most recent protocol, the Bank of Israel devoted much time to the issue of rising apartment prices and rents. The Bank of Israel clearly states that apartment prices and rents will continue to rise above its forecasts from several months ago.
The protocol said, "The housing component of the CPI is expected to rise over the next 12 months at a higher rate than estimated previously."
According to the Central Bureau of Statistics, the average price of an Israeli home rose 21% in the 12 months ending April 30, 2010. The Bank of Israel attributes to reasons to this housing boom, "Low interest and the slow response in the supply of apartments to the rise in apartment prices."
The Bank of Israel does feel that the pace of housing prices rises will moderate over the next year.
Published by Globes, Israel business news - www.globes-online.com - on August 9, 2010
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