"Opening the securitization market will help pull Israel out of the post-war crisis"
"Opening the securitization market will help pull Israel out of the post-war crisis"
Erez Soffer, Managing Partner of BDO Israel, was speaking at Calcalist's Economy of Tomorrow conference. On the question of housing prices, Soffer said, "We think that in the short term, prices will decrease, but in the long term, they will continue to rise, although not at the rate we were used to seeing"
"The topic of securitization has been discussed and debated for the last 20 years, and even today there is a bill that should automatically be passed and will allow loans and mortgage portfolios to be securitized," said Erez Soffer, Managing Partner of consulting firm BDO Israel, at the Economy of Tomorrow conference sponsored by Calcalist, BDO and Bank of Jerusalem. "Securitization is a very ancient and common device in the world. In the USA, the leader in the world, securitization makes up 43% of the GDP, but in other countries it is also a common tool. There is a sense of risk because we all remember the credit crisis that resulted from irresponsible securitization. However, global regulation will prevent such events in the future. Securitization of mortgage portfolios, building a securitization portfolio where the level of risk is very low can be a very convenient instrument for pension funds to invest in."
Soffer also said, "The mortgage portfolio is worth NIS 600 billion ($162B), even if only the European average is securitized, it is NIS 114 billion. The promotion of mortgage securitization will help the banking system free up capital and finance the projects that the state will initiate (in the field of infrastructure) and will also allow the economy to get out of the crisis. I call to promote this issue because it can speed up the exit from the crisis."
According to him, "In recent months there has been uncertainty in several areas and we need to think about what we should do to reduce economic uncertainty. In 2022 and 2023 the interest rate in the economy increased since the central banks of the world declared war on inflation. We see that the war of the regulators was successful and inflation was curbed.
"In the last month, you can see that the investing public is much more optimistic and expects a larger drop in interest rates than the Bank of Israel forecast. We estimate that the days of zero inflation are over and expect an annual rate of about 2.5%."
On the question of housing prices, Soffer said that there is no doubt that they are falling. "There are several trends that affect housing prices. Before the war, the most significant parameter was the interest rate, but since October 7, a few more variables have been added to the equation that only contributed to the uncertainty: will there be migration to the center of the country, migration to and from Israel, an increase in the prices of raw materials - we think that in the short term, the prices will decrease, but in the long term they will continue to increase, although not at the rate we were used to seeing because 0% interest rates will not return soon.
"Although we see that the sharp drop in consumption of 15% with the outbreak of the war is slowly returning to the levels of before October 7, we see an increase in the level of unemployment," Soffer said. "Just this week we were informed of the layoffs of hundreds of workers in one day - a phenomenon that should worry us all.
"Proper management of the state budget will help us get out of the crisis we have found ourselves in. This means maintaining a reasonable debt-to-GDP ratio and continuing to invest in growth generators. If you look at non-indexed government bond yields immediately upon approval of the budget, you can understand that the public is disturbed by the structure of the budget and fears a rating downgrade of the State of Israel. Debt prices have risen dramatically and the world is already pricing in the downgrading of Israel's credit rating.
"The war expenses reached NIS 200 billion, similar to the pandemic, but unlike the pandemic, they are not a one-time thing. It will be necessary to increase the defense budget. If we want, at least at the state level, to get out of the situation we found ourselves in as quickly as possible, we must direct resources to national projects, to infrastructure, to set in motion the wheels of the economy."
