The International Monetary Fund has warned of a potential real estate bubble in Israel and other countries, Globes reported on Thursday.
The IMF cited data showing that home prices in Israel rose 7.5% in the last quarter of 2012 and the first quarter of 2013. Of the 51 countries included in the report (including 13 OECD members), Israel was in eighth positions in terms of the rise.
The warning came in a report compiled by IMF Secretary-General Min Zhu which notes that rising home prices could create a real estate bubble, and pointing out that two thirds of the past 50 financial-banking crises around the world have been caused by “bursting bubbles” in the housing market.
The IMF found that rent prices are 10% above their historical average, placing Israel 13th out of the 27 OECD countries studied in this category.
Senior IMF officers stressed a dilemma over monetary policy, including interest rate policy, confronting the Bank of Israel: Low rates encourage investment activities and lower unemployment, but at the same time generate higher home prices. The report recommends that central banks give more weight in their considerations over interest rate policy.
The report offered no straightforward solutions: “While a recovery in the housing market is surely a welcome development, we need to guard against another unsustainable boom. Housing is an essential sector of every country’s economy and has systemic implications, which is why we at the IMF are focusing on it … on a cross-country basis.”