How is it that people are willing to pay twice as much for renting an office in Tel Aviv – NIS 150-170 per square meter in the heart of things, instead of paying less than half, NIS 60-70 per square meter, in the slightly remote ring, in Bnei Brak or Rishon Lezion, for example, By car or bus?
How can it be that the housing market manages to absorb a dizzying increase of 16% in the price index within a year, a rise of about NIS 250,000 in the average apartment price, the order of three years of median Israeli salary?
And the freshest question: how is it that the housing market is not shaking and reducing demand following the interest rate hike this week, an increase of another 0.4% that immediately translates into the monthly repayment paid by mortgage borrowers?
For a thousand shekels do not go out of proportion?
Aside from the regular answers regarding the optimal planning of Tel Aviv or the generous mortgages, I hear more and more from those who are sure that things are completely under control: “This is a total addition of a thousand shekels, so why go out of proportion.”
If the average employee needs a 12-square-meter work space, then the decision to sit on Rothschild Boulevard in Tel Aviv will cost the company almost another NIS 1,000 a month per employee. NIS 1,000 is negligible compared to that employee’s salary, and the company spends recruiting and retaining talent.
If an average apartment buyer took another NIS 250,000 in her mortgage, at an interest rate of 2.5% for a period of 30 years, this is an additional monthly repayment of a little less than NIS 1,000. And again, NIS 1,000 is negligible compared to the desire to buy an apartment where he really wants to live (or at least close to there), and the attempt to reassure parents who beg him to finally buy an apartment while prices run away.
In mortgage matters, the Association of Mortgage Advisers estimated this week that a 0.4% increase in interest rates increases the monthly repayment of existing mortgage holders by an average of NIS 80 – about NIS 1,000 on an annual basis.
In other words: instead of scaring us with huge numbers, quite a few experts recommend focusing on the gap – the addition to the current price. A thousand shekels, a monthly or annual increase, are negligible, certainly in the current state of the economy.
The chance that the price spin will turn around
But crises are often characterized by combined troubles, an attack from many and varied fronts, and the last blow does not have to be different or extraordinarily strong to be fatal. Just like the straw that broke the camel’s back. In the long years of upward price spin, these were various factors that fed each other into a huge spiral movement – cheap money spurred people to take out mortgages and also inflated the value of the companies they worked for, which could pamper them with salaries and offices under the house, raising prices and appetite To risk more and more, and persuaded a lot of people to jump on the speeding train.
This combined attack can do the same way – only in the other direction. The expensive money will encourage people to reduce the mortgage burden, it will also shrink the value of the companies they work for, so they will be less affluent or pampered with salaries and offices under the house, which may convince those young people to wait with the purchase of the apartment. More, which will further shrink the market and prices. And we have not talked about the artillery that may come from outside: the rise in construction inputs, the rise in the price of our supermarket basket, the damage to the “wealth effect” (and the mood to buy and invest), and perhaps even a government that can implement some measures that increase supply and demand.
Whatever it is, do not be sure that it takes much more than “just a thousand shekels” or “only 0.4% interest” for the ship to suddenly change direction. So that there will come a moment when we will not be able to understand how it is that they once paid such prices for offices or an average apartment, and how it is that the average Israeli falls asleep at night with her mortgage in the amount of one million shekels.