Several weeks ago, the Yad2 secondhand online marketplace published an advertisement offering for sale a two-family house in need of renovation in Rosh HaAyin. The asking price was NIS 2.42 million, but the sellers soon changed their mind, and lowered the price to NIS 2.25 million. Home buyers looking for properties quickly learn of properties offered for sale, including the changes in the asking prices.
One of the indications useful in assessing the market's mood is the willingness of sellers to compromise. In this case, the reduction in the price was only 7%. Figures compiled by Yad2 for sellers' behavior at the current time, however, show that property owners in Rosh HaAyin are not the only ones now lowering their expectations.
A check of 14 cities by Yad2 analyst Nir Chen found that in comparison with the corresponding period last year, the number of cases in which people advertising properties are willing to lower the prices of their properties was five or six times as great. Chen examined the number of new ads published in the cities in February 2019 and 2020, and found that the number of ads was the same. He then checked the prices of the same properties in March 2019 and March 2020, and found a significant difference. While only 5% of the sellers in Tel Aviv downwardly revised their price, 26% of Tel Aviv property sellers lowered their asking price in recent weeks. The picture was the same in Jerusalem: 5% of people advertising properties for sale lowered their price last year, compared with 27% now. In Herzliya and Netanya, where the price reductions in 2019 were the same as in Tel Aviv and Jerusalem, 30% of the sellers have now cut their price. The difference was even greater in Ramat Hasharon: 34% of sellers dropped their price in recent weeks, compared with only 4% in the corresponding period last year.
Easier to find bargains
These data come on top of others reported to "Globes": in the past ten days, over 3,000 requests were made to banks for suspension of mortgage payments. All of this information is starting to give a clear picture of the situation, in which the coronavirus is likely the reduce the number of deals, to be succeeded by a downward turn in prices.
Many more sellers are realizing that because of the crisis, demand has shrunk, and they must lower their expectations. Chen explains that this does mean that a high proportion of reduction in the price. In other words, no significant lowering prices is visible so far. Last year, the average downward reduction in prices was 4.62%, compared with 4.9% this year. This is an increase, but as of now, it is a small one. These prices are, of course, only asking prices.
Yad2 CEO Yavin Gill-More claims that the significant change between the same period last year and this year can be explained by uncertainty among the sellers. In contrast to recent years, it is now possible to find bargains in the market. "The compromising on the price extends to all cites and all regions. In both Tel Aviv and Beer Sheva, for example, five times as many sellers lower their price as last year. It appears that there is a window of opportunity at this time for buyers to get a home at lower prices than at ordinary times."
Lilia Nachman, CEO of Anglo-Saxon, a nationwide chain of realty agencies, told "Globes" last week that she expected prices to fall soon. She subsequently emphasized again that the market now is a buyers' market. "It's true there's a tendency now among sellers to compromise. I think it's not just the coronavirus. It's also this crazy period, including political events, among them the question of forming a government," she said. At the same time, she stresses that forecasts in this sphere should be taken with a grain of salt. "We're in a period in which analyses are meaningless. If we all knew that the virus would end in two weeks, I assume that there would be cautious optimism in the market, but no one understands what's going on. We'll recover eventually; the question is how much damage will take place on the way."
A suspension of mortgages will affect future payments
The number of requests for mortgage suspensions, 3,000 a day, is 100 times as many as in ordinary times. 30,000 requests were filed in the past 10 days.
Two weeks ago, Bank of Israel representatives contacted the management of the banks and asked them to allow customers to delay regular repayment of their mortgages by several months. Early last week, the Ministry of Finance Accountant General asked that the suspension period be increased from the usual three months to four months.
This option is neither new nor an exceptional benefit. The most usual track used at present by the banks to suspend mortgages includes suspension of payment of the principal and interest for three months without operating charges. Mizrahi Tefahot Bank also allows a distinction between principal and interest, with only the interest being paid.
Many customers were unaware of this option, and upon learning about the possibility of a suspension, began thronging the mortgage banks. A number of banks contacted by "Globes" said that they had received 3,000 requests a day.
This arrangement is not a benefit. The severe economic crisis caused by the virus is pushing people into cutting spending in the coming months, even if it will cost more money later. This includes people who have been laid off, which has severely detracted from the repayment capability; those sent on unpaid leave, who hope to go back to work in the near future; self-employed whose livelihood disappeared overnight, and a large proportion of people, whose livelihood has become unclear and uncertain.
"Many thousands of people are crowding into the mortgage banks now, each for his or her own reasons. We have received calls from property owners who have realized that their tenants will have trouble paying the rent, and whose economic model was to use the rent they get to pay their mortgage," says AMG Mortgages CEO Amit Kaminsky.
"Exercise judgment in using the banks' concessions"
A banker from one of the large banks says that even though not everyone is under pressure or in a desperate situation, many have nevertheless decided to suspend their mortgages. "There are people acting according to the rule, 'If it's offered, take it.' It's not clear that everyone needs this, but I heard an explanation from one such customer, who explained that because of fear of what will happen later, he preferred a little more money in his current account to spending or any other purpose. He said that is he takes an ordinary commercial loan from a bank, credit card company, or another non-banking concern, the interest that he would pay would be several times higher than what he is paying for delaying the mortgage payment. The mortgage interest rate is really very low. So he has NIS 15,000-20,000 in an account at less than 2% interest. It's not irrational," the banker said.
The arrangement is not free of charge. AMG did a simulation in order to calculate the increase in the monthly mortgage payment, and discovered that for every NIS 10,000 in postponed payments, the monthly mortgage repayment will increase by NIS 95 for mortgage with ten-years to run, NIS 70 for a mortgage with fifteen years to run, and NIS 55 for a mortgage with 20 years to run.
"We recommend to everyone who has been put on unpaid leave, or whose income is falling, to prepare for a period of several months with reduced income, and to exercise wisdom in using the concession offered by the banks, even if it is just for three or four months," Kaminsky says.
Published by Globes, Israel business news - en.globes.co.il - on March 25, 2020
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