Bank of Israel Chairman Fisher Wary of Israeli Real Estate Bubble

Chairman of the Bank of Israel, Professor Stanley Fisher, referred to the toughening of conditions for getting a mortgage, which the Bank of Israel itself ordered. “It’s not the best way to influence the market, but at least in this way we can prevent a sharp rise in housing prices, which is already in a bubble for all intents and purposes. We wanted to help the housing markets and stability in the banking system. We will continue to do everything required in order to prevent a quick rise in housing prices.”

Yesterday, Fisher visited Sapir College in Sederot and lectured in front of students in the economics and accounting department. According to mynet, ynet’s local paper in Sederot and the southern Negev, Fisher said to the students: “We are issuing a warning to young couples. Housing prices have gone up 22% in the last year and if we continue at this pace, then within three years, housing prices will have doubled, which will already constitute a serious bubble. Interest rates today are very low and whoever takes out a mortgage linked to the prime interest rate will regret it when interest rates return to their normal level of 4-5%. People will have to pay twice their mortgage or even more that that compared with what they’re paying now.”

Fisher today made reference to the subject of centralization in Nazareth: “It’s easy to resort to populism concerning the subject of centralization, but it’s not easy to actually deal with it. We need to research possible solutions that will be based on data and real research, and not on shouting.”

According to him, it is clear that the level of centralization in Israel is high in comparison to the world average, and that 20 business groups control about half the shares in the public market. “There are a lot of negative implications to this with regard to the level of competition in the markets, and in extreme cases it can cause damage to our financial systems,” said Fisher. In addition, the Chairman added the caveat that banking oversight has been stabilizing the financial system.

Fisher did not miss the opportunity to delve into one of the hot topics of the market today: the state’s royalties for the natural gas sources discovered recently. “The amount of gas found in the Tamar and Leviathan fields is large compared to the size of the markets, and this raises the question of royalties. It is important, however, not to breach contracts, but it is also important to check what these contracts say and if they apply at all. You don’t need to accept any person’s declaration in the field as if we’re talking about a set fact,” he added.

Fisher gave his blessings for the establishment of a committee on the issue of royalties, and said that it was good that it was checking into the matter. “If the estimates turn out to be true, we will need to take steps to prevent what’s called the “Holland Sickness”, meaning that the discovery of resources will bring about a reduction in importing gas, which will lead to a surplus in the payment balance and inflation in the local currency,” he explained.

Fisher also talked about the European sovereign debt crisis, and claimed that whoever is hastening to eulogize the Euro is forgetting what the situation was beforehand. Fisher explained that Europe was indeed turning into the “Sick man of Europe,” but according to him, the fiscal restraint in the Euro Bloc that is causing the recession is offset by the vacillations in the currency, which are leading to growth. At the end of the day, Fisher claims, the crisis’ influence on Europe itself will actually be positive as relates to the Euro Bloc countries, especially for strong countries like Germany.

On the other hand, Israel, according to Fisher, is undoubtedly affected by the European crisis, especially when we take into account that Israel exports to Europe constitute 30% of overall exports. “It’s clear that we need to rely more on local demand,” said Fisher.