Housing Credit and Macroprudential Policy in Israel

Transcription

1 Housing Credit and Macroprudential Policy in Israel Michael Kahn, Bank of Israel Macroprudential Policy at Work: Systemic Risk and Macroprudential Instruments Annual Regional Seminar on Financial Stability Issues Sinaia, Romania October

2 Main Developments Growth rate is decreasing %, QoQ in previous year Low inflation Israel OECD - Total Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q But unemployment is still very low. % OECD Q Q Interest rate is historically low Israel % 12 months change Israel OECD - Total % Euro area United States Israel

3 Financial Regulatory Structure in Israel BOI MOF Banking Supervision CMISD ISA 3

4 Risk Identification and assessment: Main Challenges: Exchange Rate NIS/USD Exchange Rate NIS/EUR Exchange Rate 6 5,5 5 4,5 4 3,5 3 1/1/2004 5/1/2004 9/1/2004 1/1/2005 5/1/2005 9/1/2005 1/1/2006 5/1/2006 9/1/2006 1/1/2007 5/1/2007 9/1/2007 1/1/2008 5/1/2008 9/1/2008 1/1/2009 5/1/2009 9/1/2009 1/1/2010 5/1/2010 9/1/2010 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 1/1/2013 5/1/2013 9/1/2013 1/1/2014 5/1/2014 9/1/2014 1/1/2015 5/1/2015 4

5 Risk Identification and assessment: Main Challenges: Home Prices ( ) 210 Home Prices Index (based on CBS survey) Average employee wage Rent Index

6 Explaining rising home prices: Demand side Yields on homes correlated with long-term bond yields Yield on renting out a dwelling compared to real yield on long-term government bonds % 5% 4% 3% 2% 1% 0% 06/98 03/99 12/99 09/00 06/01 03/02 12/02 09/03 06/04 03/05 12/05 09/06 06/07 03/08 12/08 09/09 06/10 03/11 12/11 09/12 06/13 03/14 12/14 Real yield years (moving 4 quarter average) Yield on a room apartment (weighted regional average) 6

7 % 6 Mortgage volume affected by mortgage interest rates Weighted interest rate on mortgages and mortgage volume (Monthly, August 2015) NIS billion Weighted interest rate Total mortgage flow *The weighted interest rate was calculated based on an inflation rate of two percent. 7

8 Supply side: Building starts, Past 12 months moving average M M M M M M M M M M M M M M M M M M M M M M M M M M M M M01 8

9 Risk identification and assessment: Credit Market Index Changes in Balance Sheet Credit of Banking Sector the Five Major Banking Groups ( June 2015; 2000=100) NIS 267 billion 30% NIS 875 billion NIS 113 billion 13% NIS 276 billion 31% 06/15 Construction and real estate Housing Other business (excluding construction and real estate) Total credit 9 Source: Reports to the Banking Supervision Department.

10 Credit Market - Risk identification and assessment: Household Debt Total Housing Loans (End of Year) % NIS billion % Annual Change Average % Change Households' Loans for Housing (Right Axis) 10

11 Household debt to GDP Ratio* ( , Annual) % Australia France Germany United Kingdom Israel Source: OECD; data on Israel - Bank of Israel In Israel, debt data regarding private non-profit organizations are included in the business sector, while in other countries they are included in household debt, but this amount is very low. Further, in EU countries, data on household debt includes unincorporated businesses, while in Israel, this sector is calculated together with the nonfinancial business sector. 11

12 New variable rate mortgages ( ), % 110% 100% 90% 80% 70% 62% 60% 49% 50% 40% 41% 30% 20% 34% 10% 0% Total variable rate mortgages, as a share of total mortgages issued 12 Variable rate mortgages on which the interest rate adjustment period is less than 5 years, as a share of total mortgages issued

13 The Dominance of banks ( ), % 100% Household debt to banks, as a share of total household debt Business sector debt to banks, as a share of total business sector debt Housing debt to banks, as a share of total housing debt 94.8% 90% 80% 70% 78.3% 74.5% 91.4% 60% 50% 40% 55.3% 48.3% 30% 20% 10% 0% 13

14 Share of bank credit allocated to housing, real estate and construction increased % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Housing Construction and real estate Source: Bank of Israel, Banking Supervision Department. 14

15 % Macroprudential measures in the housing market and Annual change in housing prices ( June 2015, Percent change, monthly) Survey of home prices Rent Prices Qualitative directive Higher capital requirements for high LTV Variable interest rate limit LTV limit LTV- Capital requirement PTI limit & capital requirement, variable IR limit & loan maturity limit Additional capital requirement, 1% of outstanding housing loans /08 12/08 03/09 06/09 09/09 12/09 03/10 06/10 09/10 12/10 03/11 06/11 09/11 12/11 03/12 06/12 09/12 12/12 03/13 06/13 09/13 12/13 03/14 06/14 09/14 12/14 03/15 06/15 Source: Bank of Israel, Banking Supervision Department. 15

16 16 Macroprudential measures implemented in Israel

17 Macroprudential measures implemented in Israel 17

18 75 % Policy Evaluation: Effect of Measures on Mortgage Market LTV - Distribution of new residential mortgage loans April August 2015 % Right axis LTV limit 64, Left axis Left axis , Average LTV Up to 60% Higher than 75% 18

19 % Policy Evaluation: Payment to Income (PTI) Ratio July 2011-August PTI>40% average

20 80% 70% Policy Evaluation: Effect of Measures on Mortgage Market Adjustable IR limit Distribution of new mortgages by risk level (by PTI and LTV groups), April June 2015 LTV limit Higher capital and reserves PTI, IR and max term limits 67% 60% 50% 40% 47% 39% 30% 20% 10% 14% 19% 13% 0% 04/ / / / / / / / / / / / / / / / / / /2014 Low Risk Medium Risk High Risk 06/ / / / / / / High risk PTI>=40% or LTV>=75% (in addition: 30%<=PTI<=40% and 60<=LTV<=75%) Medium risk (20%<=PTI<=40% and LTV<=60%) or (60<=LTV<=75 and PTI<=30%). Low risk PTI<=20% and LTV<=60%

21 21 The Origin of Mortgages by Income Decile January 2010 to December 2013

22 22 The Number of Working Months Required to Afford a Home by Income Decile January 2010 to December 2013

23 Conclusions Advantage to domestic regulatory structure Map measures have small effect on housing prices The measures adopted resulted in a decline in the risk characteristics of mortgages and in higher buffers set aside to absorb losses. The risks to both borrowers and the banks reduced. 23

24 24 Thank you