"The fall in housing starts, combined with strong labor market data (assuming they are credible), and the low real interest rate, support a continuation, and even strengthening, of the rise in home prices. The data increases the probability that the Bank of Israel will take more macro-prudential measures," said Harel Finance economics and research division chief Ofer Klein in his weekly macroeconomic report today.
Klein raised his inflation forecast for September to 0.4%, citing the rise in gasoline prices, and he believes that the Consumer Price Index (CPI) will show a 0.6% for August, which will result in 2.7% inflation rate for the preceding 12 months. He predicts 2.9% inflation for the 12 months through July 2013. The Central Bureau of Statistics will publish the August CPI in mid-September.
Klein predicts that the Bank of Israel will cut the interest rate to 2%, and keep it at this level for six months. He also predicts that the shekel-dollar exchange rate will be stable for the next six months.
Klein says, "New privately-built home sales fell by 2% in July, but rose by 14% over the preceding 12 months. The number of new homes available for sale fell by 3% in July, but rose by 16% over the preceding 12 months. Trend figures indicate that new home sales have been rising in the past few months, while the growth in the housing inventory has slowed. Housing starts fell by 5% during the second quarter of 2012, after falling 7% in the first quarter. Housing starts fell steadily over the past four quarters, after reaching a 12-year high.
Yesterday, DS Apex chief economist Alex Zabezhinsky said, "If the Central Bureau of Statistics labor market figures are correct, policy-makers have a reason to worry that home prices are liable to swell to bubble level. The drop in the unemployment rate, the low interest rate, the rise in housing demand, and the fall in the housing supply, support higher prices. The increase in mortgages is also worrying."
Published by Globes [online], Israel business news - www.globes-online.com - on September 4, 2012
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