30 October 12 10:25–In response to the Bank of Israel’s decision to cut the interest rate for November, Ayalon Group chief strategist Yaniv Pagot: “The Bank of Israel tried to surprise the market with the unexpected interest rate cut, and even succeeded. We felt that it was unnecessary, and that it contradicts the declared goal of gradually cooling the housing market. It seems that the unexpected interest rate cut at this time will have a greater effect in heating up the domestic real estate market than the combined effects of the new leverage limits in the housing market, which mainly target investors. The central bank’s steps are expected buy time for the new government after the elections to deal with the surging real estate prices in a thorough way. In recent years, real estate bubbles have toppled far greater economies than the Israeli economy, and we are therefore talking about a threat which cannot be understated.”

DS Apex chief economist Alex Zabezhinsky: “The Bank of Israel’s choice to cut the interest rate to stimulate the economy and introduce a balancing measure to restrict mortgages is actually liable to increase the potential risk in the inflated housing market. The interest rate cut makes it less worthwhile to invest in bank deposits and government bonds, driving investors to seek alternative, more worthwhile, investments. The result is that more investment money is likely to flow to the housing market, prodding a further rise in prices. According to a Bank of Israel study, only half of investors need to take a mortgage at all, which is why the restriction that the Bank of Israel has imposed may be ineffectual. Most investors take mortgages with lower loan-to-value ratios. Therefore, demand from investors is unlikely to fall. All in all, it seems that the Bank of Israel’s latest measures are liable to actually accelerate a rise in prices in the housing market.”

Harel Insurance chief economist Ofer Klein: “The effect of the current step on housing prices is hard to estimate. On the one hand, the interest rate cut makes it more attractive to invest in housing, but on the other hand, the effect of capping the loan-to-value on buyers of homes for investment depends on the proportion of investors who take mortgages with a loan-to-value of over 50%. We have no data on this, and the Bank of Israel probably has no data either. What is certain is that if this step is found to be ineffective, we’ll see more measures later on. We believe that this determination is enough to halt the rise in housing prices. As for the interest rate, we do not think that there will be another cut within the next six months.”…Read More>>

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