Housing Ministry official: Low interest rate causing price rise

"At low interest rates, a 2% reduction in apartment prices is a huge achievement, and people don’t appreciate this enough."

24 September 12 14:30, Einat Paz-Frankel

"In a historically low interest rate environment, a 2% reduction in apartment prices is a huge achievement. If prices are stable or falling, that's a huge success, and maybe people don’t appreciate this enough," Ministry of Housing and Construction Information and Economics Analyst Division senior director Yossi Shevet told "Globes" in an interview.

"Despite the low interest rate, on the side of the supply of land for homes, there is a response that can maintain price stability and also cause prices to fall," says Shevet. "We cannot control demand, which responds quickly to low interest rates. When the Bank of Israel lowers the interest rate by 1%, it has a very strong effect on buyers, and we see more buyers and investors."

Shevet is completing his first year in his present job, and has been a researcher of the real estate market for the Ministry of Housing for 19 hears. His remarks are in line with remarks by Minister of Housing Ariel Atias, who has warned more than once that low interest rates are like adding fuel to the real estate prices fire. Shevet warns, "Where there are no good alternatives for investment in other instruments, loans for buyers of first homes are relatively attractive, and inflation is low, everyone jumps into the real estate market."

Earlier this month, Shevet reported 127 gross average salaries were needed to buy the average priced home. He also reported that the average home price rose by 34% in real terms in 2008-12.

"Globes": Does this seem reasonable to you?

Shevet: "Salaries have not risen in real terms since 2004, which may be the cause of the public's hard feelings. Although home prices have risen sharply, the distress felt is more due to salaries. People shouldn’t have to feel such great difficulty."

The number of land sales to contractors fell 43% in January-July. Has the supply shrunk?

"Sales were weak at the end of 2011, because contractors were waiting on the sidelines. What is certain, is that the supply of land has succeeded in stemming the rise in prices, providing a response to demand and the low interest rate."

When will we see a larger fall in prices than 2% in a year, the figure you recently announced?

"Since May, demand for homes has grown, but the security and economic situation is not great, and taxes are also being raised. Can people buy homes? That is the question. There was strong demand through August; I don’t know what will happen later. Our previous economic models could not predict price levels. Prices rose during the 1990s, and people did not believe that they would fall, but then they did. The model broke down, and today no one can make predictions."

Published by Globes [online], Israel business news - www.globes-online.com - on September 24, 2012

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