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It is still hard to predict whether the repeated lowering of interest rates by Bank of Israel Governor Stanley Fischer has contributed to increased employment and economic growth or to the reduction in the cost of credit for the business sector. However, it can safely be said that Fischer's actions have indeed worked in two areas: housing prices and the stock market. Tel Aviv stocks hasverecovered sharply since the beginning of the year, and bond prices have rebounded impressively. The TA-100 is up 27% so far this year, and real estate and shares are up even more.

What has happened on the TASE over the past few months is the result of a number of developments - and certainly not just due to lower interest rates. But the rates, which are nearing zero, also have had a major influence. The lack of serious alternatives to stocks, such as bank deposits, bonds or money-market funds, has forced investors back into the stock market - and has also affected the real estate market.

The effect on the stock market is relatively easy to explain. When interest rates are almost zero and and fixed-income investments have minimal returns, investors begin to creep back toward other alternatives, even if they are riskier. The story in real estate is similar; lower interest rates play a number of major roles. This is also one of the reasons the housing component of the March CPI rose a surprising 1.6% for the month.

The Bank of Israel sets only short-term rates, but has recently begun to try to influence long-term interest, too, by buying up government bonds in the market. These two steps have lowered mortgage interest rates to an average of 3.47% in March, down from 4.14% at the beginning of the year.

In practice, even short-term rates affect mortgage markets, since many home buyers have taken out mortgages linked to the prime rate in recent years, whereas in the past almost everyone took out inflation-linked mortgages. Such prime-linked loans have their advantages, such paying back mortgages early without a penalty - not to mention the low interest - and has an effect on demand as buyers see lower financing costs.

But what about housing prices? In that case, the lower rates have kept real estate prices stable. When interest rates are very low, sellers don't have much they can do with the money until they buy a new home. Take, for example, a family that sells its home in order to buy a nicer one. What do they do with the money from the sale? They certainly won't want to risk it in the stock market or get a pitifully low return on a bank deposit. They want to buy a new home as soon as possible.

Those who thought this was a great time to sell and planned to wait it out until prices drop found they are losing money on the sale proceeds - and who really knows if prices will ever drop? This leads us to the most common case today: not selling your home and not moving up. It is easier for sellers to stick to their asking price, since in any case they have nothing safe to do with the money at a reasonable yield. This has cut down on the number of deals, but has also frozen prices, at least on paper. Things may yet get worse as unemployment grows and the recession strengthens, but for now the real estate market is holding its own.