There is increasing evidence supporting the feeling that the housing market is
threatening economic stability, with the government and the Bank of Israel
taking steps aimed at cooling the overheated property market.
housing prices have surged by some 51 percent since 2007 and by 20% in the past
year. The latest evidence of concern regarding the possible impact of the real
estate market on the economy came with the announcement of measures by Prime
Minister Binyamin Netanyahu earlier this week aimed at lowering property
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Only a month after the Bank of Israel announced new restrictions
on granting mortgages, Netanyahu, together with central bank Governor Stanley
Fischer, Finance Minister Yuval Steinitz and Housing and Construction Minister
Ariel Attias, unveiled plans to increase supply and encourage contractors to
The announcement illustrates the fact that the government
realizes that the central bank can’t stand alone on this front anymore, and that
the government needs to play an active role in increasing supply.
the Bank of Israel’s moves are aimed at addressing the demand side of the
equation, the government’s moves are aimed at impacting housing
We believe that in the near term the pace of rising prices will
slow, the trend might even change and prices will start to decline. If the
government continues to take further steps, this might even lead to an overall
long-term decrease in property prices.
While the focus is currently on
the housing market, the consumer price index for October rose by 0.3%, slightly
above analysts’ expectations. The Bank of Israel is now facing a tough decision.
On the one hand, a rise in inflation expectations, soaring housing prices and
rising rates in emerging markets support another rate hike. On the hand, the
rise in exports has been slowing and the government’s plans to cool the property
market are putting pressure on governor Fischer to leave rates
It is difficult to predict what Fischer will do, but we
believe that the governor will vote in favor of another rate hike as the shekel
continues to depreciate.
It appears that the Bank of Israel will continue
to intervene in foreign currency trading and will buy as many US dollars as
required. As long as the Finance Ministry does not intervene to prevent this
from happening, this activity will continue.
In the bonds market, we have
witnessed a rise in the yields of government bonds following the rise in yields
in the United States. At this stage it would be prudent to wait for more
economic indicators before taking any further steps.
Yaniv Hevron is the
head of macro-economics and strategy at investment house Excellence Nessuah.