IMF Housing Bust Risk Doesn’t Deter Stock Rise: Israel Markets

Investors in Israel’s real estate market are brushing off the International Monetary Fund’s warning of a possible housing bust.

Africa Israel Residences Ltd. has risen 3.3 percent in the two weeks since the IMF raised the alarm, compared with the 2.7 percent increase in the TA-100 Index. The yield on the company’s 5.9 percent bonds maturing December 2016 dropped 26 basis points in the week ended Feb. 20, the biggest decline since Nov. 28. Other home construction stocks have climbed even more, with Ashdar Building Co. gaining 13 percent since Feb. 12.

“The IMF can say whatever it wants, but at the end of the day, there are plenty of transactions,” said Shai Azar, a real estate analyst at IBI -Israel Brokerage & Investments Ltd. in Tel Aviv. “Investors aren’t getting wound up because people have been saying for a long time that prices are very high, and in the meantime they just keep climbing.”

Surging housing prices ignited a summer of mass protests that swept the country in 2011, and while the government has taken steps to increase supply, that hasn’t capped costs because demand remains higher. Even though declining mortgage rates have driven up prices by encouraging purchases, the Bank of Israel cut the benchmark rate again on Feb. 24. The bank is more concerned about the prospect of growing unemployment than rising housing costs, according to policy maker Rafi Melnick.

‘Greater Harm’

Growing unemployment “causes much greater harm than what is happening in the housing market,” Melnick told Army Radio yesterday. Housing starts and completions have risen, which “may indicate that the course of housing prices might change,” he said in a separate interview with Israel Radio.

The IMF said in a Feb. 12 report that home prices in Israel are about 25 percent above their equilibrium and there is a 20 percent chance of a housing bust that may lead to a recession. Housing prices have jumped 80 percent in nominal terms since 2007, the report said, citing government statistics. The IMF declined to comment on investor indifference to its warning.

Alarms ignored elsewhere have come with a heavy price. The bursting of the U.S. housing bubble touched off the global financial crisis of 2008 and subsequent recession.

Economist Nouriel Roubini cautioned of “signs of frothiness, if not outright bubbles,” in 18 countries, including Israel, in a Dec. 2 piece for the U.K. Guardian newspaper titled, “Housing Bubble 2.0 Can Only End Badly.”

Short Supply

Israel’s housing situation can’t be compared to the U.S. market on the eve of its collapse, when supply exceeded demand, Azar said. Shay Lipman, an analyst at Excellence Nessuah Brokerage Ltd. near Tel Aviv, said share prices of Israeli home builders will drop only if property prices do.

“The market isn’t buying it,” Lipman said. “The market doesn’t believe that prices are going to fall.” The Tel Aviv Estate 15 Index of 15 real estate industry stocks advanced for a fourth day, gaining 0.3 percent, at the close.

Buyers are more hopeful, even though prices haven’t stopped climbing, said Siman Cohen, owner of Siman Cohen Realtors and Investments in Jerusalem.

“If, in the past, an apartment stayed on the shelf for 30 days, now it’s an average of 60 days,” Cohen said. “The expectation is that prices will fall, even though that hasn’t happened yet.”

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