The state needs to formulate a national emergency plan for the housing sector, to deal with the rapid rise in home prices, said Uri Yonisi, head of the mortgage division at Bank Leumi, at the Globes-Bank Leumi Mortgages Conference. "An essential condition for dealing with the crisis is to understand that we are in a crisis," Yonisi said.
"We have a negative gap between demand and supply, that began in 2005 and hasn’t been closed," he continued. "Our growth rate is about 55,000 households a year, and, if we look at the supply, we are short of about 230,000 housing units, even when something dramatic happens in the market, as now."
According to calculations by Bank Leumi, housing prices will rise by 10% this year, after a fall of 2.2% in 2023, and after a total rise of over 30% in 2021-2022.
Yonisi says that, when the government subsidized Buyer Price program ended in 2020, people concluded that home prices would not fall. The stormed the market again, causing the steep rises. "In 2023, the market froze. People didn’t buy, but didn’t sell either, and so prices fell by only 2.2%," Yonisi explained. Buyers then realized that prices would not fall substantially, and so they stormed the market once more in 2024.
Renters are in a position of uncertainty, because only one percent of the demand for 830,000 long-term rental homes is met by institutional rentals (that is, government company Dira Lehaskir or companies that rent out homes as their business). 99% of the demand is met by private home owners. This is unlike the situation in the other OECD countries, where 60% of rental homes are rented out by institutions, and only 40% by private landlords. The result is that rents are rising.
"Young couples pay the price"
Another source of additional demand is overseas residents and new immigrants. According to Bank Leumi’s analysis, real estate purchases by overseas residents are returning to the peaks seen in Israel ten years ago. The number of immigrants arriving in Israel is also on the rise, and so the bank expects significant growth in demand for homes by foreign residents.
Yonisi estimated that new mortgages would total NIS 95 billion this year. That is almost 25% more than the total for 2023, but lower by a similar percentage than the amounts in 2021 and 2022. Considering the period and the high interest rates, it’s a very high figure.
In Yonisi’s view, this has not made the current mortgage market more risky. He says that although the home loans portfolio has grown by 66% in five years, the balance of loans in arrears has actually fallen by 4%, and the level of risk arising from inability of borrowers to make repayments has declined.
The situation is not ideal, however - rather the reverse. "Young couples are the ones paying the price, and they are the ones who need action to be taken, because were are not at a point of equilibrium. They take mortgages of more than NIS 1 million, and have to put up a large amount of equity," Yonisi said, adding that the whole family joins the effort to help a young couple obtain the required equity.
"We’re at an extreme point," Yonisi warned, saying that the large price rises affecting the housing market amounted to an economic and social crisis. He added that the state had to formulate an emergency plan to deal with the crisis, an essential condition for which was the realization that there is indeed such as crisis.
Yonisi recommended that the government should appoint an official responsible for formulating the plan and executing it. He said that, first of all, the supply of homes had to be raised to 75,000 annually. This is a very high target, considering that, at its peak, the Israeli market has not managed to produce more than 67,000 new housing units in a year.
Yonisi said that urban renewal projects should be expanded, long-term rental projects should be encouraged, the country’s infrastructure needed to be improved, regulatory restrictions in the mortgage market should be removed, and there should be more aid for young people.
Published by Globes, Israel business news - en.globes.co.il - on September 23, 2024.
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