Signs Show Mixed Picture on State of Israel's Housing Market

Officials at the Bank of Israel remain concerned about the potential of a renewed spike in housing prices due to the decline in the number of residential building starts, and the continued pace at which mortgage lending is proceeding.

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Some 102,000 homes were sold in Israel last year. This was 18% more than in 2011, but a longer term comparison shows that the increase was less significant, since home sales in 2011 were dampened by that summer's social protest movement.

The Finance Ministry also reported Monday that preliminary figures for last month show a substantial drop in the number of home sales, compared to December 2012, indicating that perhaps the market is cooling.

Last month also saw a 15% decline in the number of new mortgages obtained, compared to December 2012. December was atypical, however, in that the month saw a surge in mortgage loans to people trying to beat new Bank of Israel restrictions on mortgage lending.

Officials at the Bank of Israel remain concerned about the potential of a renewed spike in housing prices due to the decline in the number of residential building starts, and the continued pace at which mortgage lending is proceeding. Minutes of the central bank's monetary committee meeting at the end of January, which were released yesterday, reflect those worries.

According to the Central Bureau of Statistics, home prices increased by 1.1% from October to November. Between September and October the increase was 0.7%. For the 12-month period ending in November 2012, home prices increased by 5.7%.

In late October, the central bank announced curbs on the proportion of a home's purchase price that could be funded through mortgage financing. The effects of the Bank of Israel directive in suppressing the pace of mortgage lending was expected to be felt at the beginning last month, and they did not apply to mortgage loans already in the pipeline. But data released by the Bank of Israel yesterday showed mortgage lending in January was still 2.1% higher than the average volume in 2012 as a whole.

Israelis took out NIS 3.97 billion in new mortgage loans last month. The data is evidence that demand for the purchase of residential real estate is still hot, despite the limitations in the October directive.

The members of the Bank of Israel monetary committee expressed the view that a major factor exerting upward pressure on home prices is the decline in the pace at which planning and marketing of vacant land is carried out.

Efforts to cut the cost of housing, therefore, requires that the pace at which land for residential construction comes on the market be stepped up, the members said, particularly in areas of the country that are in high demand.

Bank of Israel officials have expressed the view that the government has tools at its disposal to increase the number of housing units.

For the 12-month period ending in October 2012, there were 39,626 housing starts around the country. This in turn is expected to increase the supply of housing, but the January to October figures for 2012 were 20% lower than the same 10-month period in 2011. Furthermore, the pace of land sales by the Israel Lands Administration has also been on the decline.

As of November 2012, Israelis owed a collective NIS 269 billion to lenders on residential real estate, 7.3% more than the same month in 2011. Interest rates on new mortgages that were linked to the cost of living index remained substantially unchanged in December 2012, and declined somewhat on averages for unlinked variable rate mortgages. Sales of homes to first-time buyers declined slightly, by 1.4%, in December 2012, following a 29% increase in November.

The influence of the 2011 social protests is also apparent in comparing December 2012 home sales, which came in at 10,700 - fully 44% higher than December 2011. Data for the final months of last year show steady decline in the percentage of homes bought for investment purposes since the directive issued by the Bank of Israel in late October.

The October directive placed curbs on the proportion of the purchase price on a home that can be financed through a mortgage and were particularly rigorous for the purchase of homes as an investment, setting a 50% ceiling.

Since then, with the exception of Jerusalem, there has been a substantial decline in home purchases by investors in areas with high home prices. In most other areas, purchases by investors of residential property has been stable; in Haifa, it has actually increased.

A residential construction site in Ashdod.Credit: Yuval Tebol

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