The rise in interest rates is closer than ever, against the background of an annual inflation rate of 3.5%, the highest since 2009, and apartment prices seem unstoppable, after rising by another 13% within a year, when only in the last month of 2021 they jumped by 2%. Both of these trends may put first-time home buyers with their backs to the wall: the relentless rise in price spurs them to hurry up and take out a mortgage, but the expected head-raising interest rate greatly increases the likelihood of defaulting and repaying the property.
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Data from the Bank of Israel show that in the first half of 2021, about 60,000 mortgages were taken out, which is 24% more than in the corresponding period last year. The average mortgage soared by 14% last year and reached NIS 909,000 in December. There was also a 171% jump in mortgages for apartments with a value of more than NIS 5 million, and the volume of loans granted to apartments worth NIS 5-3 million increased by 141% and amounted to NIS 18 billion, compared with an increase of 60% a year earlier. 2020.
On the other hand, the level of the monthly wage did not keep pace with the pace, and the main concern is that homebuyers, some of whom are stretching their capacity to the limit, will not be able to meet the scenario of rising interest rates. According to Prof. Danny Ben Shachar, head of the Alrov Institute for Real Estate Research at the Koller Faculty of Management at Tel Aviv University, as soon as the Bank of Israel raises interest rates, both the variable interest rate on mortgages and the fixed interest rate will rise at a more moderate rate: “For housing applicants, as well as those who have already taken out variable rate mortgages, their mortgage is going to become more expensive.”
Also the short-term interest rate directly affects the developers, as they finance the construction through short-term interest rate loans, and therefore may hurt supply and add oil to the price increases in the market.
Appraiser Haim Atkin is critical of the banks. According to him, the valuation of the assets carried out by the banks is fundamentally wrong: “When a couple wants to buy a property that was worth NIS 2.5 million a year ago, and today is sold at a value of NIS 3 million, it is a problem because it is not its true value. “We had to make a strategic assessment of the situation, and we had to understand that we are in a new world where there is uncertainty.”
According to him, the cycles in the real estate world were disrupted by the intervention of the Bank of Israel: “Anyone who held interest rates at low levels and continued to distribute money within the days of the plague made a mistake. In Corona they lowered the prime interest rate and abolished the tax for investors, no one imagined that these actions would lead to the opposite result than they thought, which would inflate prices. This created illogical scenarios. For example, there is no logic in a 2% return on a $ 1 million investment. The yield in the prime location should be 4%, and in close circles there about 5% to 9% in the far periphery in cities like Beit She’an.
“If you take the prime interest rate and add 2.5%, that’s the minimum that a person who puts about $ 1 million on a property should get a return on it. Prices have moved away from their value an unreasonable distance already now. At double the price of a few years ago.
“Today there are many couples where one of the spouses works only to return the mortgage to the bank. The Bank of Israel has fallen asleep on guard, even though since 2015 he writes that the real estate market is one of the dangers to the Israeli economy. If interest rates rise we will see here pairs of courses. How can such payments be met over 30 years? ”
The person who receives the young couples in his office is Meir Wieder, CEO of Wieder Mortgages. Will stand an interest rate increase of half a percent or a percentage, but he estimates once we reach an average interest rate of 5% -4%, which is what is expected within a year or two, people will not be able to afford it, then either they will have to spread the payments over 30 years or sell the The house.
Wieder said that he works mainly with deciles 7 and up, most of which earn NIS 20,000 a month or more: “I get a lot of hitchhikers who stretch their ability to the maximum, take a NIS 3.5-4 million mortgage. I now have a 35-year-old couple who earn NIS 42,000 a month, and they They take out a NIS 3.5 million mortgage. They sold an existing property, have NIS 2 million in their pocket, received some options from the company and decided to upgrade their residence, and they buy a property for NIS 5.75 million. They will have to repay NIS 14-13,000 a month for 30 years. “Their salary will still allow them to live with dignity, but if something happens in high-tech or one of the spouses is fired, and out of NIS 20,000 a month, they will have to return NIS 13,000, they will probably have to sell the house.”
According to him, “Any increase of one percent in the interest rate on a mortgage will result in an increase of about NIS 300-200 in the monthly repayment for every million shekels. The problem will be with the couples who earn less, because those who earn NIS 30,000 a month will be able to handle it, but a couple who took out a NIS 1 million mortgage and the interest rate rises by 2% will have to pay another NIS 600 a month.
“The couples who come to us usually see only one thing in front of their eyes, they say how I did not buy three years ago, I lost the deal of my life, and they are eager to buy now so as not to miss the train. They see that instead of buying they miss deals .