The amount of new mortgages taken in the past few months is a long way from the peaks of a year and a half ago, before interest rates started rising. Bank Leumi claims, however, that the market is recovering, and even says that we won’t see significant falls in home prices.
"The mortgage market is in a period of uncertainty. In their culture, Israelis’ tastes have not changed to long-term rentals, and so Israelis will continue to buy homes," says Uri Yonissi, head of Bank Leumi’s mortgage division. "When is the time to do that? Now. Now, because the uncertainty is more to do with investment buyers, who have abandoned the market, who currently account for 5% of the amount of mortgage loans taken, and that’s because they now have other options, such as a 4-5% risk-free return at the banks. So, anyone who needs a deal today - this is where to look for it.
"Our own chief economist says that there is a prospect of a steep fall in prices, but we’re still not seeing it, because there are factors working in opposing directions. I’m not contradicting him, but in the end we won’t see substantial price falls. The real estate market is near boiling point, just before boiling over again," Yonissi said at the annual conference of the Israel Mortgage Advisors Association. He added that he did not agree that the market was seeing arrears in mortgage repayments, and that, given the rise in interests rates, this was an "amazing" fact.
Dror Feldman, Mortgage Sector manager at Mizrahi Tefahot Bank, said that, as far as demand was concerned, the bank was seeing many customers forced to continue sitting on the fence. "Some of them are doing so for lack of choice, because the monthly repayment has grown beyond what they can afford. But there many for whom what bothers them is the expectations. There was, and still is, very great uncertainty. But the interest rate environment has become clear, and it will remain the same for a long time, so anyone who was sitting on the fence in the expectation that interest rates would fall, realizes that it won’t happen. At the same time, the situation is not hopeful, because building starts are at a low. There are contractors who have been forced to cut prices. In the short term, there are slight falls, but in the medium to long term, we’ll see prices rising, unfortunately. So, as far as the housing market is concerned, I don’t bring good news," Feldman said.
Yonissi said that home prices had stopped rising, and had even fallen 5% in central Tel Aviv. "But in the areas surrounding Tel Aviv, the situation has not changed," he said. He added that developers were refraining from starting projects, and that the new homes market had become a market of buyer groups, because of the developers’ heavy financing costs.
"There is therefore a process of a slowdown in construction of new homes. The rate of housing starts is declining, and we will feel the effect in the coming years. The lesson has apparently not been learned. The government has to understand where this starts and deal with this factor. But there is still extraordinary excess demand. We have a shortfall of 203,000 housing units. Every month that that prices don’t fall, more and more people enter the market," Yonissi said.
He asked the mortgage advisors whether the they felt that the market was reviving, and when they responded positively he added that Bank Leumi too identified a revival.
On the macro-economic conditions, Feldman said that the high interest rate environment would be with us for at least another year and a half. "I greatly fear that we are not at the end of the rise in inflation, among other things because we are continuing to see rises in rents, which represent a quarter of the Consumer Price Index."
Published by Globes, Israel business news - en.globes.co.il - on July 31, 2023.
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