The slackening pace of mortgage taking is an indication that the real estate market is cooling off, Governor of the Bank of Israel Karnit Flug said today in presenting the state of the economy to the Knesset Finance Committee.
"Housing prices continued to haunt us over the past year, and the volume of mortgages continue to grow. We are still seeing no turnaround in housing prices. In recent months, there has been some drop in the volume of mortgages, due among other thing to a rise in mortgage prices. I think that the fact that we are seeing some kind of decrease might be reflection of the beginning of a cooling down in this market, but it has yet to be converted into a change in housing prices. We took a series of measures in the housing market in order to prevent excessive leveraging and excessive risks by borrowers in the mortgage market," Flug said.
Finance Committee chairman MK Moshe Gafni (United Torah Judaism) ask Flug why the Bank of Israel's 2016 economic growth forecast had missed the target (the current estimate is 3.5% growth, compared with a 3.8% estimate by the Central Bureau of Statistics, while the Bank of Israel 2016 forecast published in December 2015 was based on a 2.8% growth estimate for 2016. Flug answered, "We didn't anticipate the increase in car imports, which contributed 0.5% to economic growth. It contributed to GDP because the tax on car imports was counted as part of GDP."
Flug continued, "The macroeconomic situation is generally good, mainly because of the global environment. Our growth forecasts for 2017 and 2018 will be a little higher than 3%. This growth will rely less on private consumption, with some recovery in exports. I would say in general that this is more healthy and balanced growth than in recent years, when growth was driven mainly by private consumption.
"Export performed poorly, among other things because of moderate global demand for exports and erosion in the exchange rate. The shekel appreciated against the other currencies during the year, which lowered inflation and made things difficult for exporters. We're intervening in the foreign currency market in order prevent further shekel appreciation. In the long run, utilizing our potential requires export growth, because in the end, we can take advantage of our relative advantages. The main reason why we expect exports to grow is the forecast for recovery in world trade, which we hope will materialize."
No equal opportunity
In her remarks, Flug criticized the educational system in Israel, asserting that it is not doing its job of creating equal opportunity. "We have many strong points, but education is our Achilles heel. We trail the developed countries in all population groups in the expertise needed in the labor market. Our achievements are low in all areas of mathematics, reading, and science. The gaps are particularly wide, and in my opinion, one of the most disturbing findings is on the question of whether there is equal opportunity.
"The issue here is the probability that someone in the bottom quarter of the socioeconomic index reaching the top quarter in achievement on the standardized tests - 3%. That is the lowest in the OECD. In other words, the educational system is not creating equal opportunity.
Commenting on the financial system, Flug said, "The new initiatives should be stopped; a focus on implementation is needed. She called for creating a financial stability committee, which the ministerial committee for legislation has already approved. Concerning expected developments in the future, Flug said, "The credit database will give public much more bargaining power over credit prices. At the same time, the expansion of the credit sector and the entry of new players entail greater risks."
MK Haim Jelin (Yesh Atid) how the Bank of Israel was dealing with the debts of the tycoons that had been written off. "If someone robs a bank of a million shekels, he goes to jail. If a billion is involved, it doesn't happen," Jelin said.
Flug explained, "The things we're talking about were created many years ago. The rules for loans to a single borrower have changed dramatically, and the restrictions are much tougher. The banks themselves are diverting credit much more in the direction of households and retail credit. I therefore think that we are talking now about problems that were created in the past, and I think that the current restrictions will not allow these problems to occur. I see that with the current restrictions, the volume of loans to a single borrower or a group of borrowers will be far smaller than in the past."
Jelin recited the names of the Supervisors of Banks since 1969, all of whom he said had moved into senior positions in the banking system. He added, "Even if this is justifiable, and even if it's legal, it doesn't look good."
Flug answered, "I worked with three Supervisors of Banks, and I can say that each of them was super-professional and guided by the public good. These people are 100% committed to the public good." MK Micky Rosenthal (Zionist Union) asked Flug whether the cooling off period should be lengthened, and she answered, "If you want a long cooling off period, there is a price to pay. Either you take people at the end of their careers, or you take only people with a socioeconomic status who can live for a long time with no salary."
Published by Globes [online], Israel Business News - www.globes-online.com - on January 2, 2017
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