The Bank of Israel is still in no hurry to call the rise in home prices a trend. The minutes of the latest Monetary Committee meeting, published today, state, "Over the past 12 months, there has been a moderation, and even a halt, in the increase in home prices. With that, there was an increase this month in new mortgages granted, though it is too early to tell if there has been a change in trend in the housing market."
In July, new mortgages reached an all-time high of NIS 5 billion, and "Globes" reported that this record was broken in August, with NIS 6 billion in new mortgages granted.
Home prices rose by 1.2% over the preceding 12 months, according to the Central Bureau of Statistics Survey of Home Prices. The Monetary Committee meeting's minutes state, "In light of the increase in the number of new mortgages granted, Monetary Committee members agreed that there is still a risk of a renewed trend of price increases."
Data from the Central Bureau of Statistics, Government Assessor, and Ministry of Finance indicate that the housing market has been heating up, both in terms of the increase in new mortgages and in terms of rising prices. The housing item of the Consumer Price Index (CPI), which reflects rents, rose by 1% in July and 4% over the preceding 12 months.
However, the Bank of Israel believes that the large number of housing starts should increase the housing supply. "Activity in the construction industry is strong compared with its levels in the past decade. Although building starts are below the record level of the middle of 2011, they remain high and are expected to continue to be reflected in an increased inventory of homes. There were 42,319 building starts in the twelve months to May, compared with 43,927 in the twelve months to April. In June, the stock of vacant homes available for sale was 20,600, maintaining the stable level of the past year."
As mentioned, the Bank of Israel is in no hurry to declare a renewed trend of rising home prices, despite the data for the summer, saying that purchases may have been brought forward due to expectations for an increase in VAT.
The Monetary Committee decided to keep the interest rate for September unchanged at 2.25%. The committee members discussed the latest developments in the debt crisis in Europe. The minutes state, "There is considerable uncertainty regarding the development of the crisis in Europe, and the possibility that a solution to the crisis will not be found cannot be ruled out. With that, Committee members assessed that there is a strong commitment to finding a solution to the crisis, an assessment reflected as well in the positive returns in financial markets around the world during the recent period. The geopolitical situation in the Middle East also contributes to the uncertainty in the economy."
The Monetary Committee members expressed concern over rising inflation expectations, mainly due to rising prices for fuel and food, and the VAT hike.
Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2012
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