Home prices were 8.8% higher this May compared with the same period last year, the Bank of Israel said in a recently released report on the central bank’s monetary policy for the first half of 2014.
Since the end of 2012, home prices have increased at an annual rate of between 7% and 10%.
There has been a significant decline in the number of home purchases since the beginning of the year, partially due to expectations that the government will implement a program exempting some buyers from VAT, the bank said.
The report was drafted at the end of June, before Operation Protective Edge began, so forecasts for macroeconomic indicators such as growth and the exchange rate are no longer up to date.
To combat a surge in housing prices, the banking regulator tightened mortgage requirements and other measures to protect banks and borrowers.
“The effectiveness of these measures can be seen in the reduced risk characteristics of mortgages,” the report said. “On the other hand, the demand for business credit has not expanded, and in general there is no observable financial imbalance in this area.”
Reuters contributed to this report.