The August mortgage data provide another signal of the weakening of the residential real estate market, mainly due to the increase in interest rates. Nevertheless, regarding the prices themselves, there are still no similar signs of a cooling of the market and a drop in prices, while there are quite a few countries in the world that are already signaling The release of air from the price bubble.
Why isn’t this happening? How is it that in Israel, despite a 20-fold jump in interest rates in the last six months (from 0.1% to 2%), apartment prices did not change momentum, and presented an annual increase of 17.8% in the latest report? First of all, patience. When you turn a rudder, certainly in a heavy and huge ship like the residential real estate market in Israel, the ship will inevitably move forward another tens of meters before we feel a change in direction. A young couple or a family who have already decided to buy an apartment are not so quick to fold their tails and retreat.
It is too early to determine where the housing market is going
Beyond that, the interest rate increases here with us only started last April (0.25% in the first pulse) and the most up-to-date report by the Central Bank on the change in apartment prices is for the month of June – before the Bank of Israel pressed the pedal and raised the interest rate by another 1.25% in July and August. It will take time until We will know what the effect of the Bank of Israel’s recent measures is on the apartment buyers, but we can certainly see signs of pressure among the sellers and entrepreneurs, some of whom have already been forced to raise money at much higher interest rates. The first evidence of the effect of interest rates on buyers can be seen, as mentioned, in the mortgage data released this week. In August, the volume of mortgages fell to NIS 9.6 billion – still high, but the lowest figure in 12 months and far from the peak of March – NIS 13.4 billion.
If indeed the power passes to the buyers – both because their number has decreased (because the interest rate will increase the monthly repayment on her mortgage by about NIS 400-500 from the beginning of the year and also because why buy an apartment for investment when the banks offer a risk-free deposit with a similar return) and also because the sellers are at the peak of supply Construction and permits (about 80 thousand annual rate) – it is not really difficult to see where things are leading, even without looking at what is happening in the USA or New Zealand.
And at the same time, it should be remembered that there are quite a few reasons why Israel can behave in the opposite way from many other countries that have raised interest rates. Why does the phrase “rigid demand” not crash with us, when the central bank starts raising the price of money. In all other western countries, the “real” demand for additional housing units is very controversial, when every mother gives birth to less than 2 children and the entire population shrinks generation after generation.
On the other hand, in Israel the population doubles every 2-3 decades, and a mother gives birth to an average of 3 children. Add to that faltering governance, when the government is primarily responsible for increasing the supply of apartments (as the owner of the land and in control of the planning institutions) and when the local authorities are not really interested in seeing an increase in apartments and families (the property tax does not even cover a third of the expenditure on them), it is suddenly very clear how out of place the comparison with other countries is .
But in the bottom line, even seemingly rigid demands need money to buy an apartment. The main question is whether an interest rate of 2% is already starting to seep in, or will we have to wait for the next blow from the Bank of Israel.