Buying a home in Israel costs on average the equivalent of 146 monthly salaries in the first quarter, up two months from the year before and 43 months from 2008, when home prices began their big rise, figures from the Construction Ministry showed.
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The average price paid for a home bought in the first three months of the year was 1.394 million shekels ($350,000), up 3.5%, or 50,000 shekels, from the 2014 average, figures showed. The average price paid for a new home fell 50,000 shekels, to 1.57 million shekels, in the first quarter, while that of secondhand properties rose 40,000 shekels, to 1.27 million shekels.
The figures came as Finance Ministry budget director Amir Levi called on Bank of Israel Governor Karnit Flug to toughen the terms for mortgage approvals. Among other things, he said the loan-to-value ceiling for investment properties should be reduced from its current level of 50%.
“As you know, the rise in home prices is not only a serious economic problem but a challenge to economic stability, as the International Monetary Fund report recently released stressed,” Levi said in a letter.
The IMF said in a report on the economy released two weeks ago that Israeli home prices are about 30% overvalued and a correction in the property market could depress consumer spending, especially for people who have bought homes in recent years. It expressed concern about Israeli banks’ exposure to mortgage loans, which account for close to a third of bank credit, and to the highly leveraged construction sector, which accounts for another 13%.
“The problem of growing household debt due to home lending, together with a growth in the banking system’s exposure to the real estate and building sector, which also operates with a high degree of leveraging, risks financial sector stability,” Levi warned.
The Bank of Israel responded by saying it holds professional discussions with the treasury, not through the media.
Treasury officials said the continued rise in home prices is due to the fact the demand still exceeds supply, a problem the government is working to correct by raising taxes on homes bought for investment, lowering the cost of buying government-owned and freeing land in the center of the country by moving army bases to the unpopulated south. The latter step alone will make land for 60,000 housing units available, they noted.
The Construction Ministry survey found that the average price of a home bought in the Tel Aviv area in the first quarter was 2 million shekels, up from 1.92 million shekels in 2014. Meanwhile, the pace of home sales accelerated sharply, with the number up 13% to about 31,900 shekels in the first quarter from the final three months of 2014.
The Construction Ministry has traditionally published quarterly data by the end of the following quarter. This time, however, the data are six months’ old and a new government, with a finance minister — Moshe Kahlon — committed to ambitious programs aimed at cooling off the housing sector.