Former deputy governor of the Bank of Israel Zvi Eckstein told "Globes" that the government has failed to lower home prices and that the Bank of Israel should consider restricting mortgages.
"Globes": Is there a real estate bubble?
Ekstein: "The rise in prices is explained by the rise in demand, partly due to the interest rate cuts. The government, for its talk and transactions, did not greatly increase the planning inventory in central Israel. This is the main factor why we continue to see prices rise. The planning inventory should be a multiple of 5 to 10 of demand for competition to exist. Only then can prices come down. In effect, this is the government's main failure. The government, through its decisions and actions, can lower prices. It hasn’t done this in the past 2-3 years."
Nonetheless, given the risks you mentioned, should the Bank of Israel take additional measures to reduce the financial risk?
"I'll put this gently: there is room to consider restricting mortgages loan-to-value. How much to limit this is a professional question, but the principle is clear. Because of the leverage, it is very seriously worthwhile considering capping borrowers' exposure, both in terms of banks' stability, and in terms of the probability that a particular population will be unable to repay loans in the event that the risks materialize."
Ekstein added, "Sometimes in these markets, developments can be rapid and the current risk is very high. If the worst-case scenario materializes - an attack on Iran which sends the Israeli economy into a severe recession - the unemployment will jump to over 11%. Under these conditions, housing prices could plummet. That is why it is worthwhile to preempt the risk to the financial system by setting debt criteria for households."
Published by Globes [online], Israel business news - www.globes-online.com - on August 19, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012