October 31, 2012–Bank of Israel Governor Stanley Fischer is signaling he’s ready to stave off a potential housing bubble like the one that triggered the U.S. housing collapse, even as the government focuses on re-election.
The central bank announced home loan limits this week while at the same time unexpectedly reducing the benchmark rate to the lowest in 22 months. The directives set a maximum loan-to-value for the first time, restricting mortgages to 50 percent for investors, 75 percent for those who have never purchased a home before and 70 percent for everyone else.
“There is a problem with the real estate market, it can’t be ignored,” Yaniv Pagot, chief strategist at the Ramat Gan- based Ayalon Group Ltd., said by telephone. “The government is in a sort of “end of school” atmosphere. The Bank of Israel, as the responsible adult, will have to let out the hot air until the government solves the problem by increasing supply.”
Fischer’s steps to slow home price growth come three weeks after Prime Minister Benjamin Netanyahu called early elections amid a budget deadlock, caused in part by the government’s inability to fund social-welfare spending promised after consumer protests over spiraling housing and food prices. At the same time, the low rates have fuelled ballooning mortgage debt, raising central bank concerns about the stability of banks.
Israel’s efforts to avert a housing bubble, with prices up about 20 percent since 2010, mirror those taken elsewhere, as central bank efforts to jumpstart growth by pushing down borrowing costs fuels demand for real estate…Read More>>