fischer - Sasson Tiram - April 26 2011
Stanley Fischer: Didn’t want to spoil the holiday mood. Photo by Sasson Tiram
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Housing prices haven't stopped rising and so the Bank of Israel is planning another move, hoping to prick any nascent real-estate bubble before it fully forms.

This week, possibly even today, the central bank will be limiting mortgage loans at the prime rate of interest to 40% of the value of the purchased home, down from 60% today.

The prime rate of interest is the reference rate used by the banks. With Bank of Israel interest at 3%, the prime rate was 4.5%.

This will be the third step the Bank of Israel has taken with hopes of cooling down the raging Israeli real estate market.

The first was in May 2010, when the Bank of Israel capped the maximum mortgage loans bearing the prime rate of interest at 60% of the value of the purchased home in May 2010, down from 80% beforehand.

In October 2010, the Bank of Israel - again with the idea of making mortgages more expensive - ordered the banks to set aside a bigger proportion of capital when making big mortgage loans.

The central bank, led by Governor Stanley Fischer, had considered lowering the cap on mortgage loans bearing prime interest a month ago. But then - at the end of March - the Bank of Israel decided to raise its interest rate for April by 0.5% (to 3% ), and the governor decided to hold off on the latest mortgage decree.

Fischer spent the Seder and Passover holiday in the United States with his family. However, he was back in the early hours of Thursday morning and by 9 AM that day, was at the Bank of Israel to conduct the monetary meeting.

On Sunday the central bank announced that its rate of interest would remain unchanged for May at 3%. The break in interest rate increases, after three straight months of hikes, prepared the groundwork for the latest move to rein in mortgage lending.

The central bank could theoretically have made its announcement about mortgages on Sunday, together with the interest rate announcement. But it reportedly decided to hold off on the announcement until after the Passover holiday, in order not to spoil the mood.

Still, the signs were there. In its interest rates announcement on Sunday, the central bank devoted a great deal of attention to the increase in housing prices and the mortgages market.

According to the housing survey by the Central Bureau of Statistics, home prices rose at an annualized pace of 1.7% in January and February. Over the last 12 months, home prices have increased by 16.1%, the data shows.

Meanwhile, another index tracking the price of rent (which, unlike the housing survey, is included in the consumer price index ) has increased by 6.4% in the last 12 months.

In the last 12 months, according to the Bank of Israel, about NIS 50 billion worth of mortgage loans were given.

Interest on mortgages continued to rise in April, partly because of the Bank of Israel's rate hikes. Meanwhile, the smart money is predicting a rate hike for May, if the consumer price index in April does as widely expected - rises a lot. The Bank of Israel is predicting that the CPI will have increased by 0.8% in April, which will all but force the governor to raise the central bank rate of interest.