Mortgage borrowing picked up in November, according to a report released Tuesday by the Bank of Israel, with monthly loans hitting NIS 7.6 billion ($2.24 billion) last month, an increase of 24% from October but well below the numbers from just a few months ago.
Monthly borrowing has been decreasing from an all-time high of NIS 13.4 billion ($3.94 billion) in March, just before the bank started raising the benchmark interest rate from a historic low of 0.1% to 3.25% as of November, the sixth rate hike in eight months.
Mortgage borrowers have been facing higher housing prices — up 19.8% year on year — and rising interest rates pushed up by the Bank of Israel to temper inflation, which grew above the bank’s target range of 1-3% to 5.1% in October.
Last month, the central bank increased the interest rate for the sixth time since April, to 3.25%. These rises have substantially increased monthly mortgage payments for borrowers. With a majority of mortgages still tied up in variable interest rate deals, the costs rise each time base rates rise.
The Bank of Israel has indicated that it expects to increase interest rates further over the coming months.
Borrowing figures from the past three months are at levels last seen in mid-2020 when the real estate market experienced a sharp slowdown due to the pandemic.
Overall housing market data suggests that this is the result of fewer new mortgages rather than a decrease in the value of individual loans, with a particularly dramatic fall-off (Hebrew link) in the numbers of new homes sold (down 17.7% in July-September compared to the previous three months). With average home prices rising – an average apartment now costs around NIS 1.9 million, or just under NIS 3 million in Tel Aviv – and wages growing by a much lower 4% year on year, the value of mortgage borrowing might logically be expected to go up.
According to a separate report by the Finance Ministry’s Chief Economist Office published Tuesday, October saw the fewest residential real estate transactions since April 2020 when Israel was reeling from its first pandemic lockdown, and the lowest number for an October month in 20 years. Just 5,100 housing units were brought in October 2022, according to the report, down 35% from the month prior and a whopping 65% less than October 2021.
October 2021 saw Israelis buying 14,000 housing units over the course of the month, more than a third (about 4,800) of them by so-called investors — households that already own one or more dwellings. This rush, which was the highest monthly number since June 2015, occurred right before Israel restored a purchase tax of 8% for second-home buyers
The purchase tax, which went into effect in late November last year, had been reduced to 5% in 2020 in an effort to get investors back into the real estate market amid the economic slowdown brought on by the pandemic, boost the construction sector, and increase tax revenues. Experts correctly predicted that higher housing prices would follow.
In October 2022, investors purchased 929 units, down 80% from last year. About 2,500 of the 5,100 units bought in October were new dwellings, including those purchased through the Mehir Matara (Target Price) housing lottery program.
The Finance Ministry said that initial figures for November 2022 show a similar drop in residential real estate transactions.
Bank of Israel figures due out later this week will provide information on the market for new homes and overall price rises in the costs of housing and the overall cost of living.