Young Israeli Couples' Dream of Home Ownership Fading

Study finds that for young couples, new home cost 156 monthly salaries last year - 74% more than in 2004.

Young couples looking for their first home have been hit with a double whammy over the past seven years: While the median price for a new home rose 49% from 2004 until the third quarter of last year, the median salary for young marrieds declined by 15%.

That is what a recent Finance Ministry study found. In the third quarter of 2011, the median price for a new home was NIS 1.02 million while the median salary was NIS 6,500 per person. Prices for second-hand homes rose by a similar percentage, the study found, meaning all the options for achieving the goal of home ownership has gotten further and further away over in recent years.

In fact, the research, which was conducted by Galit Ben Naim of the ministry's State Revenues Administration, said it took the equivalent of 156 monthly salaries for a young couple to buy a new home - 74% more seven years earlier. The cost of buying a second-hand home also rose in terms in monthly salary but at a more moderate pace: It took 125 salaries to purchase such a home, 54% more than in 2004.

The numbers give further evidence that Israel's middle class is seeing its standard of living eroding even as the economy grows. The problem of home affordability is emerging again as the Bank of Israel weighs measures to restrain what it fears could be an emerging real estate bubble.

The study found, ironically, that as prices were reaching new highs in 2009, young couples poured into the market, especially those with lower incomes, in search of new homes. Thus, in 2008 the median income for buyers of new homes was NIS 7,800 - 14% more than in 2004. But from then until the third quarter of 2011 the average salary of a new-home buyer plunged 25% even as prices for the homes themselves rose.

The decline in incomes for home-buyers isn't dealt with in the report, but is likely linked to the economic downturn in 2008 and 2009, which led to salary cuts, wage freezes and layoffs.

The Finance Ministry contends low interest rates were one of the main reasons more and more young couples entered the real estate market even as home prices were surging higher - the buyers calculated that the low cost of repaying the mortgage would at least partially offset the home's higher price.

The research also found that increasing numbers of young couples opt to buy their first home in the first year of the marriage rather than wait, as was the case in the past.

For people moving up to a larger and more expensive home, the salary-to-price ratio was more favorable than for young couples. The treasury study found it took 124 monthly salaries to buy a new home, not counting any profit the buyers made from the sale of their first home.

Geographically, the area that saw the biggest increase in housing prices was the Sharon region, where homes purchased by young couples doubled to NIS 1.45 million in the seven years. On average, it took them a stunning 200 monthly salaries to cover the price. In the greater Tel Aviv area, it took 250 salaries in third quarter 2011, double the 2004 figure.

Jerusalem was a bright spot for young marrieds. The average salary for them rose 22% to NIS 8,200, although home prices rose 73%, meaning they needed 177 monthly salaries to cover the price.

In the Tiberias area, a home cost a young couple of average salaries 85 monthly wages.