Leumi EVP warns on housing price surge

Eyal Ben Haim EVP Bank Leumi credit: Cadya Levy
Eyal Ben Haim EVP Bank Leumi credit: Cadya Levy

Bank Leumi EVP and head of banking division Eyal Ben Haim told the Globes Mortgage Conference that without a government plan housing prices will surge in the near term.

"We don't see arrears in payments, which means borrowers are cutting back on other luxuries in their day-to-day spending, probably also due to the general increase in prices in the economy," Bank Leumi EVP and head of banking division Eyal Ben Haim told the Globes and Bank Leumi mortgage conference.

The situation in which borrowers have not fallen behind in payments is despite the fact that the Bank of Israel found that the increase in interest rates has cost mortgage holders over NIS 1,000 more in monthly repayments on average.

Ben Haim also stressed that the bank is attentive to the needs of mortgage holders and makes adjustments for customers according to their needs. "Not only that, we are making a proactive appeal to anyone whose repayment has increased significantly to examine their mortgage and offer an alternative. Recently we even announced that we will absorb part of the repayment for a wide range of customers," Ben-Haim added.

Ben Haim said that he expected the Bank of Israel Monetary Committee to leave the rate unchanged today and that he expected rates to start falling from April 2024.

"In the last year and a half we saw a significant increase in interest rates in the US. In Israel, the Bank of Israel's interest rate is the highest in the last decade, and at a rate three times the interest rate just two years ago. You can see that the interest rate rose from 1.6% at the end of 2021 to 6.25%, which certainly affects the housing market."

The pandemic passed and then came the war

Ben Haim continued, "At the start of 2022, after the threat of the global pandemic had passed, we were under the impression that everything was over, the crisis was over and we took off our masks. But then the Russia-Ukraine war broke out in February, which affects the global economy to this day.

"We are in a complex situation: an energy crisis, price increases in Israel, a socio-political crisis, high interest rates and the market has been in uncertainty for a long time. The low value of the shekel is also weighing on market certainty and investors are sitting on the fence or looking for alternatives."

On housing prices, Ben Haim said that at the present time, "Housing price rises have halted after many years - from an increase of 4.4% in 2005 to an increase of 18.8% in 2022. The high interest rate allows investors more attractive alternatives in the capital market or in safe financial instruments such as deposits, financial funds, etc. Therefore, they are almost completely out of the market, while those looking to buy homes are still in the market but are afraid to do deals in the new economic environment.

"Almost everything affects the housing market - from demographic growth to the interest rate in the economy. How did we get to a situation when there is such a large shortage of apartments? On the supply side, we see developers refraining from starting new projects to avoid high financing costs and also the increase in interest.

"In 2005, there was a relatively small gap in the supply of apartments and construction starts in relation to the addition of households in Israel. Today we are in a cumulative gap of 90,000 missing housing units. Over the years there have been fluctuations, ups and downs in building starts, but most years there has been a gap between the amount of additional households and the amount of building starts."

The number of deals and mortgage taking are on a downward trend

Ben Chaim added, "After two years in which the banking system saw a peak in the volume of mortgages of NIS 122 billion, we see for the first time in 2023 a decrease in the volume of deals. However, Israel has a strong culture of owning an apartment. This is a huge psychological force that pushes those seeking to buy a house to deals, despite the barriers we detailed earlier.

"The volume of mortgages is at a level of 65% of the peak period over the last two years, but already in June we began to see a stabilization, and now a slight increase, which indicates that the homebuyers will not continue to sit on the fence for long and are determined to complete deals.

"If we add to this the cumulative gap in housing units that has existed in the market for some time, we get a very fragile situation, which without a government plan to regulate the housing market, will lead to another surge in prices in the near term. That is why we at Leumi anticipate that we will see an expansion and increase in the volume of deals and the volume of mortgages while adapting to the new economic situation."

Full disclosure: The Israel Mortgage Conference was held by Globes in cooperation with Bank Leumi

Published by Globes, Israel business news - en.globes.co.il - on September 4, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Eyal Ben Haim EVP Bank Leumi credit: Cadya Levy
Eyal Ben Haim EVP Bank Leumi credit: Cadya Levy
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