Bank of Israel: Home Prices to Rise in 2011

According to the Bank of Israel, housing prices will skyrocket in the coming year, which will probably require some sort of intervention to reverse or slow the trend.

At a meeting on January 24th of this year, the members of the central bank’s management recommended an increase in interest to 2.25 because of inflation and an increase in economic activity. They also concluded that the bank would need to actively work to reverse the trend of high housing prices. According to the notes from that meeting published this week, “There is a significant probability that housing prices will continue their rapid rate of increase in the coming year.”

Over the course of 2010, prices rose 17.3%, which was seen as reflecting low interest rates and a simultaneous housing shortage. However, over the last quarter of 2010, home prices rose once again, as indicated by a significant increase in the number of housing loans. The total amount of loans in November along was 10% higher than of December 2009.

According to a survey taken by Government Assessor, the average price of a four-room apartment rose 3.8% percent in comparison with the previous quarter and approximately 13.7% when compared to the same quarter at the end of 2009. Since the end of 2008, four-room apartment prices have risen 29.4%. According to the office, the rise in price is directly linked to the housing shortage in the country, which was at 13,500.

Home prices increased the most in Hadera and Beersheva, with a total of 8% increase in pricing. Jerusalem and Nahariya did not change. Eilat, the only city to experience a drop in home prices, saw a drop to 4%.

The Bank of Israel’s response up until this point was to discourage house ownership by raising the interest rate and making the necessary conditions for obtaining a mortgage out of the reach of most Israelis. However, the response was ineffective as there the demand only increased over the last year. According to the Association of Contractors and Builders Nissim Bublil, “The Finance Ministry is failing to stem the surge in prices. The best thing to do to solve the problem is to build more houses rather than raise taxes.”