Fischer Seen Responsible Adult in Israeli Home Bubble: Mortgages

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.