Property market continues to overheat...

The Bank of Israel is concerned at the rise in real estate prices. "There is a renewal of the rapid rise in housing prices, alongside a fall in building starts and a rise in the number of transactions and the volume of mortgages," the protocol of the discussion on the interest rate decision for February by the central bank's Monetary Committee states.

According to the Bank of Israel, the housing item in the Consumer Price Index rose by 3.3% in the year to December, compared with 2.8% in the year to November. In October-November, housing rose 1.1%, compared with a 0.7% rise in September-October. In the twelve months to November, home prices rose 5.7%, compared with a rise of 4.1% in the twelve months to October. Meanwhile, the number of housing units started in the period January to October was 20% lower than the number for the corresponding period of 2011, and land sales by the Israel Land Administration also slowed sharply. Further evidence that the housing market continues to overheat lies in the statistics for mortgages granted in January released by the Bank of Israel today. Mortgages totaling NIS 3.97 billion were granted last month, a figure that is 2% higher than the average for the past twelve months. Although it represents a fall of 15% in comparison with December, it must be recalled that December is traditionally a very strong month. In comparison with January 2012, the figure is 30% up.


The mortgage statistic reflects a market that is still at boiling point, despite a series of restrictions on mortgages that the Bank of Israel has imposed. The Monetary Committee protocol also reveals that members of the committee acknowledged that the measures introduced by the Bank of Israel on mortgages were mainly aimed at preserving financial stability, and that their moderating effect on the housing market was on the demand side only. The committee members believe that "an important factor in the current rise in home prices is the fall in the rate at which land is zoned and sold," according to the protocol, which goes on to state that "dealing with home prices should focus on expediting planning procedures and boosting land sales, especially in high-demand areas, leading to a rise in the supply of residential units."

The Bank of Israel blames the government, which has "the tools for raising the supply of housing units, which can act to moderate the rise in home prices without hurting the level of activity in the industry." And what of the expected developments in the near future? Mortgage industry sources estimate that the boom in mortgages will continue, unless there is some dramatic change, such as a reform instituted by the new government. The reason for that is that there are several factors behind the current trend, chiefly the low interest rate, a lack of attractive alternatives for investment, and genuine demand for real estate. "The Bank of Israel's restrictions on the level of financing will probably have only a limited effect, and mainly on buyers for investment. In any case, it will only be possible to assess the effect of the restrictions in several months' time," a senior industry source said.

Source Globes