Wednesday, September 12, 2012
New signs of heating up in real estate market
However, the VAT hike can no longer explain the continuing strong demand for mortgages in September, and demand is apparently driven by the heating up of the real estate market, due to the low interest rate (which will likely remain at its current level through the end of the year), the drying up of the capital market, which has driven away investors who are diverting money from the TASE to real estate, and the public's assessment that home prices will not fall.
Governor of the Bank of Israel Prof. Stanley Fischer is monitoring these developments with concern. The Bank of Israel imposed restrictions on mortgages a year ago in an effort to cool the real estate market, but the effect seems to have worn off, and the market is again sizzling. One aggressive measure that the Bank of Israel has been contemplating for two years is to ban LTVs of more than 60%, which accounted for 40% of all new mortgages in August. Nonetheless, the central bank is very hesitant to carry out this measure. Beyond the gross intervention in the free market, capping the LTV is controversial, and is liable to carry a heavy social price because the blow to the market would be too severe, especially on the homebuyers with the least means - young couples and families in the periphery, who can only buy an apartment with a high LTV mortgage.