Bank of Israel expects home prices to rise

Cost of four-room apartment up 30% since end of 2008.

February 7, 2011 23:55
2 minute read.

Home . (photo credit: Alejandra Goldenfen)


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The Bank of Israel expects prices in the housing market to continue to rise fast in the coming year, which may require the imposition of additional macro-prudential measures.

“There is a significant probability that housing prices would continue their rapid rate of increase in the coming year,” the central bank said in the minutes from its meeting before the interest-rate decision for February, which were published on Monday.

At the meeting on January 24, all the participating members of the central-bank’s management recommended that the Bank of Israel Governor Stanley Fischer increase its base deposit interest rate by 25 basis points to 2.25 percent for February because of a substantial expansion in economic activity and rising inflationary pressures.

Those at the meeting discussed the effects of the steps taken so far by the Treasury and the Finance Ministry to influence housing prices.

They concluded that the Bank of Israel would need to introduce other macro-prudential measures if there was no change in the path of prices and in the degree of leverage.

The acceleration in house prices was renewed in December. Last year, house prices increased 17.3% as interest rates remained low and the supply of houses fell short of demand.

The latest figures relating to the October-November period showed a renewed acceleration in prices and a marked increase in the volume of new housing loans with a significant share at floating interest rates, the central bank said. The outstanding balance of housing loans in November was 10% higher than that in December 2009.

The concerns raised in recent months by the Bank of Israel and the Finance Ministry regarding the continued increase of housing prices were further reinforced by the Government Assessor survey for the fourth quarter published on Monday.

The survey showed that the average price of a four-room apartment rose 3.8% in the last quarter of 2010 compared with the previous quarter and 13.7% compared with the same quarter in 2009. Prices increased the most in Hadera and Beersheba, rising 8% on average compared with the previous quarter. A four-room apartment in Beersheba cost an average of NIS 675,000 in the fourth quarter, compared with NIS 623,000 in the third quarter.

Prices remained steady in Jerusalem and Nahariya in the fourth quarter. Eilat was the only city where prices declined, down 4%.

Since the fourth quarter of 2008, prices of four-room apartments have surged an average of 29.4%.

The Government Assessor attributed the continued rise in property prices to the low supply in available apartments, which stood at 13,500.

Although the Bank of Israel raised the interest rate and imposed tightening conditions on mortgages in an effort to lower demand for homes, strong economic indicators and continued growth were accelerating demand, the report said.

“This survey and the most recent data from the central bank and the Central Bureau of Statistics are further proof that prices are continuing to rise, and they show that the Finance Ministry is failing in its efforts to stem the surge in prices,” Association of Contractors and Builders president Nissim Bublil said Monday. “The Treasury needs to find immediate solutions to the shortage of supply in new housing rather than trying to cool down the market by raising taxes.”

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