Prices in the housing market are expected to continue to rise over the next 12 months, albeit at a slower pace, according to the Bank of Israel.“House prices continue to rise very rapidly, and did so in April, too, and if this rate persists, it will distance them from the level consistent with the economic fundamentals,” according to minutes from the central bank’s interest- rate decision meeting for August that were released on Monday.“Another econometric equation, for forecasting changes in house prices, gives the result that the rate of increase in house prices is expected to moderate in the next 12 months.”The Bank of Israel raised interest rates for August by a quarter percentage point, to 1.75 percent, at the end of July. One of the reasons for the rate hike, which was unanimously supported by central bank officials at the meeting held on July 26, was that housing prices and the housing index (rents) are continuing to increase rapidly, together with a rapid expansion of housing credit.Based on a survey by the Central Bureau of Statistics, housing prices increased in April by 1.2%, and in the 12 months to April inclusive by 21%, due to both the low rate of interest and to the slow response of the supply of houses to higher prices.Bank of Israel officials raised concern over the rise of 21% in house prices in the 12 months to May and the continued increase in mortgage credit.They cited a need for macroprudential measures in light of the increase in house purchases for investment purposes and the high share of mortgage credit at floating interest rates. The central bank’s supervisor of banks, Rony Hizkiyahu, sent a directive to the country’s banks, which went into effect at the beginning of July, requiring banks to increase their reserve provisions for housing loans given with high loan-to-value ratios.The number of mortgages granted in the first half of 2010 was 52% higher than in the first half of 2009, which can also be attributed to the rise in house prices, according to the central bank. Central bank participants at the meeting suggested that the increase in new mortgages in the past few months may have resulted from buyers preempting the new directive by bringing forward their house purchases.The share of unindexed floating-rate mortgages in new mortgages fell again in June, following its decline in May, but it is still high, at about 50%. Most of the participants thought it best to wait till the effects of the steps already taken have been further evaluated before introducing other macro-prudential measures.Property prices have been slowing down moderately over the past couple of months after sharp increases over the past year, according to a report by the government assessor in the Justice Ministry published on Sunday. Prices of four-room apartments rose by an average of 3.2% in the second quarter, while a year-on-year comparison showed that prices surged by an average of 17.2% between June 2009 and June 2010.The report was based on a sample of 4,700 purchases of apartments in 16 cities in the first and second quarters of 2010.A year-on-year comparison showed the sharpest price surge in Tel Aviv, where the average price of a four-room apartment rose 32%, to NIS 2.31 million, in the second quarter from NIS 1.76m. in the corresponding quarter last year. In the second quarter of this year, though, prices were up by 2% from the previous quarter.In Herzliya, the average price of a four-room apartment rose 14%, to NIS 1.65m., in the second quarter from NIS 1.44m. in the same quarter last year. In the capital the average price of a four-room apartment increased by 19%, to NIS 1.62m., in the second quarter from NIS 1.35m. in the corresponding quarter in 2009.Over the past year there was also a sharp rise in property prices outside the Central region. In Haifa, the average price of a four-room apartment rose by 20% in the second quarter, to NIS 985,000, compared with NIS 823,000 a year ago. Prices in Haifa increased by 8% in the three months to June this year compared with the previous quarter. In Beersheba, the average price of a four-room apartment surged by 23% year-on-year to NIS 626,000, from NIS 508,000.The government assessor’s report attributed much of the continued price hikes in the housing market to the low supply of new apartments for sale.