Archives for December, 2009

economic news

Interest is up and the taxes are down

News everywhere. What’s up? What’s down? The Bank of Israel has raised it’s core rate of interest to 1.25%. This makes the Prime rate 2.75%. I think that the interest rate will continue to rise moderately for the foreseeable future. Right now we are looking at inflation of around 4% , giving us negative real interest. This can’t last. On the flip side, the value added tax (VAT or מע”מ) will be reduced by 0.5% to 16% with another 0.5% which will hopefully be reduced within the year. Both of these developments testify that the slow down is slowing down. Raising the interest rates is a preemptive strike against inflation. The inflation writing is on all the walls. The VAT was originally raised to...
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EMI bought by Harel

EMI, the private mortgage insurance provider, was sold by AIG to Harel Insurance for $35.5M last week. You can read about in the Calcalist news site. More interesting is that EMI earned 54 M NIS last year. By my rough calculations, this means that they were sold for a multiple of only around 2.5 of their annual profit. Does this mean that Harel is unsure if EMI will be around 3 years from now? I really don’t understand this.  ...
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debt

Ploni is having temporary problems making his mortgage payment. A few months ago, one of his payments wasn’t honored. He now knows that next week his next payment won’t be honored either. Why not just do a quick refinance and recast our payments and take a few hundred thousand shekels to cover our debt while were at it? In the States, we used to do this all of the time. We called them debt-consolidation loans. They were a major contribution to the current recession. People spent money that they didn’t have, and then took out a “cash-out” loan to cover the debt. The biggest problem was that they were taking cash out of artificially inflated real estate values. In Israel, we also are in...
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Inflation and the cost of houses

Here are two quick links for you from Globes, Israel’s leading business paper. Inflation is up, as expected, by 0.3% for the month of November, and the experts expect that it will get much worse. And, housing prices continue to rise. Though housing is one of the components of the consumer price index, its rises are caused by other external factors. Both of these things are very important to mortgage takers.  ...
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bank of israel

בנק ישראל שוקל לפרסם ריבית ייחוס למשכנתאות

According to this article in Calcalist כלכליסט – בנק ישראל שוקל לפרסם ריבית ייחוס למשכנתאות the Bank of Israel is considering publishing recommended mortgage rates. I looked at the Bank of Israel press releases and found nothing alluding to this. In the article they say that this will help refinancers by publishing rates for capitalization (early repayment fees). I don’t get it. I remember when the banks could make up whatever rates they wanted for calculating capitalization. Then there was a big reform, and the Bank of Israel started publishing these rates. You can see them here. It’s hard to understand how an additional publication will add anything to our knowledge. I don’t know, maybe it’s just a slow news cycle and they have...
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Interest rates, the dollar and real estate prices

I haven’t had a chance to write for several weeks. A lot has happened. The Bank of Israel raised its base rate (and the prime along with it) by 0.25%, we continue to have mild inflation, and real estate prices continue to increase, though there are those that think differently about the trend.. In Globes today experts speculate that the US Dollar exchange rate will rise to 4.00. The expert’s reasoning is that the dollar has taken too much of a beating. I can’t guess short term trends, only fools do this. I do think, however, that there will come a day in the coming year or two where the dollar will be at least 10% higher than its current exchange rate of 3.81....
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