Are apartment prices on the way to declines? Not according to the mortgage market. From data published today (Wed) by the Bank of Israel on the volume of loans, it is evident that there has been a significant reduction in the number of mortgages taken out, but this is only half the story. Those who decide to purchase apartments – do not consider the rising interest rates, and take record-breaking mortgages, probably because they do not believe that price drops are expected soon.
The highest mortgages are the “buyer’s price” buyers, whose average mortgage last month reached NIS 1.09 million.
● Mortgages in Israel are indeed down from their peak, but the market has not yet cooled down
● The interest rate effect: mortgage volumes in October reached a low of more than two years
● 24 years on average: her mortgage not only increased, it also lengthened
● The prime interest rate jumps to 4.75%: how much more expensive will your mortgage be?
5,811 borrowers took out mortgages last October. It is true that this is the month in which the Tishrei holidays fell (with the exception of Rosh Hashanah), but in general this is the weakest month in 4 years in terms of the number of borrowers who took a mortgage in it; The amount of mortgages taken out – NIS 6.1 billion – was the lowest since June 2020. The reason for many buyers moving away from the mortgage market is clear, and it is the interest rate increases that began last April and apparently have not yet ended.
However, precisely because the figures for this month were lower than those we have become accustomed to in recent years, one clear trend can be identified: there is indeed a decrease in the number of borrowers and the volume of loans, but the decrease in loans is much lower than the decrease in the number of borrowers, so that the average mortgage that is taken out is higher than before.
In August and September we saw a decrease in her average mortgage, but the October data is a blatant rebound for what appeared to be the beginning of a phenomenon: her average gross mortgage reached a level of NIS 1.05 million – a monthly record; The mortgage taken by investors reached an average of one million shekels, and that is a record. And regarding the investors, it can also be noted that the number of borrowers who took out mortgages in October was the lowest since October 2016. Still, those who remained in the market broke records in the mortgages they took out.
The dilemma of the winners of the “Price for the Tenant”
Its mortgage records were broken precisely by the buyers of the discounted apartments within the “renter’s price” framework. 1.09 million shekels on average taken by the 654 borrowers, embodying the difficult dilemma faced by the winners of the government program: on the one hand, they win discounts, the seven draws (which were carried out in most of these cases in the years 2018-2020) reached about 20% of the value of the apartments. Today the discounts have doubled and more, in view of the price increases that have taken place since then; On the other hand, interest rates have risen and so has the need to take out higher mortgages.
Those winners who decided to realize their winnings and take the high mortgages, say in their decision that they are willing to risk with high loans, because of the big discounts and because we don’t see a scenario where apartment prices actually collapse.
Those who bought apartments on the free market and who are not investors, took an average mortgage of NIS 1.06 million. This is not a record, but here too there is some kind of statement for them.
The high loans also raised the risk indicators. The first is the one that measures the monthly repayment for her mortgage, with reference to income. 47% of the mortgages taken out in October had a repayment of 30% or more of the monthly income; Another index, which checks the amount of her mortgage in relation to the value of the apartment purchased, revealed that 46% of the mortgages were at rates higher than 60% of the property’s value. These are two more records.
Does last October indicate a trend, or is it a holiday month, which does not reflect what we will see in the near future in the market? This is a heavy question, which will probably be answered in the coming months, which will also include the latest interest rate hike.