The proportion of Israeli households that manage to save money has fallen substantially in the past year, while the proportion of those that do not manage to make ends meet has risen, according to analysis by Meitav Investment House based on the Central Bureau of Statistics’ consumer confidence index.
28.3% of Israeli households report that their monthly expenditure exceeds their income; 38.5% report that they break even; and 33.3% report that they manage to accumulate savings.
The bottom line is that the position of Israeli households is worse than it was before the outbreak of the Covid-19 pandemic.
Meanwhile, figures from the Bank of Israel show that total household debt in Israel has risen by 7.9% this year, reaching NIS 747 billion at the end of the second quarter. Over two thirds of this debt is for housing.
An indication of the cause of the rise in household debt is the rise in the rate of unemployment, which reached 4.3% in October, and the situation Is not likely to improve quickly. The Bank of Israel forecasts growth of just 3% for the Israeli economy in 2023, down from 6% this year.
Various other reports also indicate a deterioration in household finances. Consumer credit company Direct Finance, for example, has reported "a deterioration in the payment ethic of the company’s customers" and the expectation that credit losses will rise. In addition, the proportion of mortgages considered to be at risk because the monthly repayment exceeds 30% of the borrower’s income reached 45% in September, an all-time high.
Banks brace for loan repayment problems
Coincidentally or otherwise, Bank Hapoalim is offering customers the possibility of extending the period of the floating rate component of their mortgages, which has been affected by the rise in interest rates, while keeping the rest of their mortgage terms the same, and without a fee. Other banks are expected to offer their customers similar solutions.
Although some market estimates are in line with the view that the situation of households in Israel will worsen as interest rates rise, various experts with whom "Globes" spoke said that they did not foresee a wave of households getting into difficulties over mortgage repayments, or mass layoffs. The slowdown, they say, will manifest itself in a decline in private consumption, mainly of luxuries such as entertainment and flights abroad.
No dramatic deterioration yet
Meitav chief economist Alex Zabezhinsky says, "The conclusion we reached is based on a survey by the Central Bureau of Statistics, which examines whether people’s income covers their expenditure. We are unquestionably seeing a deterioration. It’s still not dramatic, but the situation reported by households is less good than it was before the pandemic, and the trend is that there are more and more households whose expenditure exceeds their income."
Zabezhinsky estimates that the situation will worsen. "We’re on our way to slower growth as in the rest of the world, and that will manifest itself in many measures, such as a slowdown in wages growth. Wage rises are not keeping pace with inflation, and it’s impossible to ignore mortgage repayments, which have been strongly impacted by the rise in interest rates and in inflation." He adds that total repayments on mortgage loans have risen by NIS 13 billion within a year, "an amount equivalent to 1.5% of private consumption in the State of Israel"
Despite this, Zabezhinsky points out, we are not seeing repayments in arrears. "The expectation is that people will cut back - they’ll buy less, travel less, and take fewer loans - but it isn’t that they are falling into arrears on mortgage repayments. I believe that we are pretty much at the beginning of this process, and that we’ll see it gather momentum later."
Zvi Eckstein, dean of the Arison School of Business and Tiomkin School of Economics at Reicman University (The Interdisciplinary Center Herzliya), believes that Israel’s economy is in a good position, and that the Central Bureau of Statistics figures should not cause concern at this stage. "First of all, employment in the economy is on a rising trend, despite the October numbers. Secondly, there is a rise in the average real wage - not just in high tech, but in lower paid jobs as well. It’s true that there’s a significant rise in prices, but real wages have also risen," he says.
Eckstein adds that the most likely explanation for the results of the Central Bureau of Statistics survey lies in monthly mortgage repayments, which have jumped by hundreds of shekels. "People, mostly in the 25-45 age group, did not price in the possibility of such a rise in interest rates on floating rate loans, and young couples, who leveraged themselves in buying a home by 60% or more, are feeling it more. In addition, when the lockdowns of the pandemic period were lifted, many people raised their private consumption to compensate for what they had been through. I don’t think we’ll see a situation in the near future of people losing their homes.
"We’re not in the verge of a significant crisis," Eckstein continued. "Here and there we’ll see a drop in activity in certain sectors and a halt in others, such as we are seeing in high tech, for example. Growth next year will be 2.5-3%, and we’ll probably see a fall in demand - in overseas trips and entertainment for example - but not something dramatic. The low growth will come after a 6% rise this year, and all in all the figures are coming into line."
Eckstein sees Israel’s problem as lying in future growth engines. "We have failures such as the lack of investment in infrastructure or professional training. On the whole, our financial and monetary systems are stable, and relative to the rest of the world our situation is good."
Published by Globes, Israel business news - en.globes.co.il - on November 16, 2022.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.