October saw an eye watering drop of 43% in the number of mortgages taken out by the public, from 10.7 billion shekels a year ago to NIS 6.1 billion last month.
Despite the fact that there were five fewer working days in October this year due to holidays, these are still weak figures compared to September 2021, when the volume of mortgages was 7.2 billion shekels.
No matter how one chooses to interpret these numbers, it is clear that the number of mortgages being issued has been on the decline. Since reaching a peak of 13.4 billion shekels in March, the trend has been heading in the other direction ever since.
There is no doubt that the key reason for this change in the market is the increase in interest rates by the Bank of Israel (BOI).
The BoI is expected to continue raising the interest rate on November 21, which means a further decline in demand for new mortgages from the public as it faces a squeeze on its finances. However, the extent of the damage won’t be seen for at least another month from then.
In the meantime, a decrease in mortgage applications has not yet resulted in lower property prices. They actually grew by 1.9% in September, completing a 19% gain in the previous year, making it the largest in a decade. However, if this trend continues, the drop in mortgages is projected to have an impact on house values as well.
While changes in interest rates have an immediate influence on the stock market, they take a little longer in the real estate market. However, whereas the trend up until earlier this year was characterised by a steady increase in the volumes of mortgages and transactions that saw properties appreciate in value, the trend has reversed in the last eight months as the number of mortgages began to decline in volume. This will undoubtedly have an effect on the housing market in the near future, and with the way things are going, it’s more of a matter of when than if.