The IMF calls on the Bank of Israel to act cautiously in response to rising home prices. In the IMF's Article IV Consultation on Israel it writes, "With affordability now stretched relative to historical norms, caution is appropriate; indeed, these developments in the housing market corroborate other signs that policies are accommodative," it says.
The Title IV Consultation is based on meetings between IMF staff and Bank of Israel and Ministry of Finance officials in November 2010. The draft report was published on the IMF staff's last day in Israel November 29. The full report is full of praise for Israel, but warns against an overheated real estate market.
"House prices are up over 40% since the great recession began. The absence of a prior housing bubble, alongside long-standing supply constraints, restrictive planning regulations, global recession safe-haven inflows, low policy interest rates, and uninterrupted bank lending to households have conjoined to produce an uncomfortable echo of advanced countries in the early-to-mid 2000s. But, with the possible exception of the second quarter of 2010, private consumption behavior seems largely unaffected by the boom - perhaps as it offsets other losses in asset portfolios. Moreover, in contrast to recent experience elsewhere, there is no evidence that the boom is related to a weakening of credit standards: mortgages are “full recourse;” almost all stay on the original creditors’ books (with none packaged into structured products), and headline delinquency rates remain low and have declined over the past year. Additionally, loan to values remain low, although this may be a reflection of the increase in house prices."
Published by Globes [online], Israel business news - www.globes-online.com - on January 25, 2011
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