Israel’s low interest rate environment has the danger of further boosting housing prices, the International Monetary Fund said Monday, but the possibility of a quick adjustment in prices is also worrying.

In the concluding statement of its annual consultation, the IMF said that Israel was conducting proper monetary policy given the strength of the shekel and the global environment. “The low interest rate environment could, however, fuel further house price increases,” the report said.

“If house prices continue to rise, macroprudential measures, notably those which directly restrict the size and risk of mortgages, should be further tightened.” The IMF also recommended increasing property purchase tax for non-primary residences temporarily and, crucially, taking measures to boost the supply of housing, “including by implementing the recommendations of the Housing Committee.”

Despite the difficulties posed by the increased prices, however, the IMF also noted that a crash of prices posed an economic risk to Israel.

“A correction in the housing market and the associated feedback loops could undermine banks’ asset quality and profitability, and pose financial stability risks, the report said. “Despite progress in addressing concentration, risks concerning the financial viability of some large highly-leveraged corporates (holding companies and real estate and construction firms in particular) remain.”

All in all, the IMF mission found Israel’s economy to be growing moderately, projecting 2014 growth to fall somewhat to 3¼. The greatest risks posed to the economy are external – sluggish growth in the United States and Europe mean less demand for Israeli products abroad.

http://www.jpost.com/Business/Business-Features/IMF-sees-risk-in-Israels-housing-market-335150