(photo credit: Israel Hadari)
Rising property prices and the expectation of higher interest rates could hurt
home owners’ ability to make their mortgage payments, Supervisor of Banks Rony
Hizkiyahu said Wednesday.
“There is a risk inherent in current property
prices,” he said at The Marker Capital Market Conference in Tel Aviv.
we discover a problem that has not yet fully developed, it is time for
us to act
to avert a crisis.
“The low mortgage-interest rate environment is creating
a delusion about the ability of borrowers to repay loans. Since most
are linked to variable interest rates, the big question is what will
the interest rate rises – and it will rise.” This is the reason the Bank
Israel announced directives to cool down the booming realestate market,
They are part of the central bank’s supervision policy to
strengthen the financial system in general, and the banking sector in
particular, before crises arise, he said.
The new regulations make loans
more expensive for home buyers seeking a mortgage of more than 60
percent of the
value of the property.
“We have seen a rapid rise in property prices over
the past two years,” Hizkiyahu said. “A bubble occurs when prices rise
their true value and are detached from basic factors of the economy.
of these factors is rental prices. Lately we have been seeing a form of
‘disconnection’ in the rental-property market.
“According to economists
and analysts, we are not talking about the formation of a bubble, but
direction is worrying and we need to be cautious.” Property prices have
22% over the past year and 30% over the past two years. At the same
for real estate, especially for investment purposes, has increased.
supply of housing and volume of new construction starts are not enough
satisfy high demand,” Hizkiyahu said.
Overall housing credit has risen by
15%, while bank credit in general has fallen, he said.
Hizkiyahu said he
was concerned that 84% of mortgages issued in the first quarter of the
shekel-linked at variable interest rates, which means that monthly
will vary any time the Bank of Israel adjusts its benchmark interest.
interest rates are expected to rise, it would be more difficult for
holders to make their monthly payments, he said.
Despite efforts by the
Housing and Construction Ministry and the Israel Lands Administration to
the supply of housing through the release of land tenders over the past
months, there has been “no significant change” in the situation and the
continues to suffer from a shortage, the Bank of Israel said in a report
“The marketing of land tenders and permits for construction
approved by the Israel Lands Administration are expected to have an
the supply of housing only in two years time,” the report said.
demand for residential housing is continuing to rise, probably boosted
mortgage interest rates and despite an increase in the base lending rate
The inability of the supply side to satisfy demand is
reflected in the continued surge in real estate prices, although at a
than in the previous two quarters.” The Bank of Israel has raised its
interest rate from 1% in January to 1.5% in April.