Recent data from the Bank of Israel highlights a worrying trend in the housing market, signalling the onset of a significant crisis. The monthly mortgage volume has returned to levels seen three years ago, indicating a decline in real estate market activity. While the total amount of NIS 6.5 billion in new mortgages in March was roughly the same as in previous months, the number of transactions was down, reminiscent of the crisis in the early 2000s.
Comparing the mortgage volumes in May to the monthly averages from the last quarter of 2022, a stark decline of 46% is observed, aligning it with the mortgage levels witnessed in the second half of 2020. This drop is indicative of a significant reduction in mortgage borrowing within just the past three years.
The situation, however, is far more severe when considering the surge in apartment prices since mid-2020, which have risen by approximately one-third. Consequently, it could be said that the equivalent amount of mortgages is being taken out amidst a considerably lower number of property transactions.
The dwindling number of transactions corroborates the Central Bank and Chief Economist’s reports, which indicate a decline of over 40% compared to the corresponding months in the previous year. On average, around 6,500 transactions were conducted per month in the first third of this year, a figure reminiscent of the crisis years between 2003 and 2005.
It’s worth mentioning that the recently published Bank of Israel data lacks the breakdown of mortgages by sector, which is expected to be released later this month. However, previous reports indicate that the remaining participants in the market primarily consist of affluent individuals purchasing properties valued at NIS 3 million and above. Additionally, there are also winners of “renter price” lotteries who are keen on availing themselves of the discounts they have obtained (a scheme run by Israeli authorities for individuals who qualify to apply for a discounted housing: potential buyers apply for an eligibility certificate from the Construction and Housing Ministry, which they can obtain for a one-time fee of NIS 240 ($75). Households then register for the chance to “win” the opportunity to purchase an apartment at discounted price).
These findings highlight the critical need for additional mortgage sector analysis and the implementation of comprehensive measures to stabilise the Israeli housing market and prevent a potential crisis from worsening. Proactive measures will be required to address the declining mortgage volume, dwindling transactions, rising flat prices, and ensuring housing stability and affordability for all Israelis. And, given the government’s recent success in passing the new budget, this is undoubtedly an area where it can concentrate its efforts in the near term, especially given the importance of the property sector in both the broader economy and capital markets.