Monday, September 9, 2013

Home prices gathering pace, again

The Bank of Israel admits that the pace of the rise in home prices is again accelerating, but it hopes that the new measures to restrict mortgages will lower the risk to the banking system. "New mortgages continued to be taken out in large volumes," states the Bank of Israel in the minutes of the Monetary Committee meeting in August, which it published today. "In order to reduce the risk to mortgage borrowers and the banking system, the Supervisor of Banks published draft guidelines which limit the share of repayment out of income, the share of the loan which may be granted at variable rate interest, and the term until final loan repayment."

In late August, Supervisor of Banks David Zaken put further restrictions on the mortgage market, for the seventh time in the past three and a half years. This was the first time that the Bank of Israel intervened in borrowers' ability to meet their monthly mortgage payments. The Bank of Israel adds that NIS 5 billion in new mortgages were granted in June 2013, compared with the monthly average of NIS 4.4 billion since the beginning of the year. The Central Bureau of Statistics reports that the housing item (rent) in the Consumer Price Index (CPI) rose by 1% in July, after rising 0.3% in June. In the 12 months through July, the housing item rose by 3.1%, similar to the increase over the 12 months through June. It adds that home prices, which are published in the Central Bureau of Statistics survey of home prices but are not included in the CPI, increased by 0.5% in May-June, and that data for previous months were revised upward.

"Based on the updated data, the decline in the annual rate of home price appreciation has halted, and prices increased by a rate of 9.3% in the twelve months ending in June, compared with an increase of 8.7% in the twelve months to May. The number of transactions in the housing market continues to increase," says the Bank of Israel. Home prices have risen 82.6% since the start of the price surge in May 2007. In this period, prices fell in only 11 of the 74 months, and in most cases, the drop was negligible. Home price fell by over 1% only once - a 1.2% drop in October 2007.

The Bank of Israel is pinning hopes on the new mortgage measures, but it is not talking about lower home prices, but about stability of the banking system. "This month as well, the Committee members discussed the ramifications of the rapid growth in mortgages… The Committee members believe that the recent measures enacted by the Supervisor of Banks - the guidelines limiting the rate of repayment out of total income, the portion of the loan that can be issued at variable-rate interest and the term until final loan repayment - will moderate the prudential risk derived from the growth and composition of mortgages," state the minutes. The Bank of Israel says that all five Monetary Committee members voted to leave the interest rate for September unchanged.

Source Globes

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