Thinking of taking a mortgage to buy a house in Israel? Think again, because Stanly Fisher, the chairman of Bank of Israel, remains determined to fight the rising real estate prices in Israel.
After Bank of Israel raised the basic interest rate for three times during 2011, the Central Bank is trying to find other ways to cool down the real estate market in Israel, which is reflected by rising dwelling prices, and number of real estate transactions. To that end the Bank is trying to find ways to limit the public from taking mortgages.
The two main steps that are considered are:
- Limiting the amount of loan that could be taken for a given house to no more than 50%;
- Limiting the component of the variable interest rate in the mortgage.
During 2010, the commercial banks provided 48 Billion NIS (14 Billion USD) mortgages, a rise of 35% compared to 2009 and 152% compared to 2006.
The Central Bank’s concern is that the rising numbers of mortgages taken and increasing interest rates will cause many people not to withstand the mortgage payments, and this situation might roll into a financial market crisis.
The recent report by the Ministry of Finance shows that the number of apartments sold during February declined along with the dwelling prices. Nonetheless, this recent report doesn’t seem to curb Bank of Israel’s concerns.
These concerns might have some merit; however notice that Bank of Israel is raising its interest rate so it is responsible for the increasing mortgage installments paid by the public, and finally the sub-prime crisis that erupted in 2008 had different characteristics than the current real estate market in Israel has. I will refer to this matter in a future post, but for now suffice it to say that Bank of Israel has reasons to be concern about the real estate market, however the situation isn’t dire as Bank presents it to be.
Here is daily recap of the Israeli financial markets for April 13th:
Tel Aviv 25 moderately declined by 0.04% as it closed today and reached 1,330.73;
Tel Aviv 100 also moderately dropped by 0.09% and reached 1,208.93;
US Dollar/ NIS fell during the day by 0.842% to reach 3.417;
Euro/NIS declined by 0.440% to reach 4.9589;
Canadian dollar/NIS decreased by 0.976% to reach 3.5597.
The Gross yield to redemption with fixed interest and one month maturity rose by 0.03 percent points and reached 2.97%.
The Gross yield to redemption with fixed interest and 12 months maturity reached 3.37% an increase of 0.01 percent points.
Want a more detailed analysis on Israel economy? IBR can do it for you…read here for more
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