Israeli Mortgage Lending Eases in May as Housing Market Appears to Cool

The number is the latest clue suggesting that home prices are hitting a rare correction

A new apartment block in the Neveh Sharett neighborhood in northeast Tel Aviv.
Eyal Toueg

Israelis have taken out only 4 billion to 4.5 billion shekels ($1.25 billion) in mortgages in May, banking sources say down from the 5.35 billion shekels the same month a year ago.

The figure joins other indicators suggesting that Israel’s boiling-hot housing market may be cooling down.

The fall in May might prove partly due to business days lost to the holidays of Independence Day and Shavuot, but it’s also part of a trend that began in September. That month, 4.9 billion shekels in mortgage loans were taken out.

The most recent figure published by the Bank of Israel was for March 4.46 billion shekels, compared with 4.12 billion shekels for February. The April figure isn’t final, but according to estimates it was only 3.7 billion shekels due to the Passover holiday.

Another indication that the housing market is cooling came last week when the housing price index for February-March declined 0.5%, compared with a 0.1% increase for January-February.

Data from the Central Bureau of Statistics data, as well as the most recent report by the government appraiser, also indicated that housing prices may be declining.

Banking sources said the declining mortgage figures stemmed from several factors, notably home buyers waiting to see the effects of the new tax on owners of three or more apartments. That law is currently being appealed at the Supreme Court.

Other buyers are waiting to see if they’ll win the chance to buy a home in a Mehir Lemishtaken project, which are available to first-time buyers under a lottery system. Also, the increase in bank interest rates may have driven buyers to reconsider taking out mortgages.

Alon Glazer, vice president research and bank analyst at Leader Capital Markets, noted that mortgages are larger when prices are higher, and that the larger credit spreads increase customers’ interest rates as well as banks’ profits. The problem is on the other side of the equation customers are paying more, which increases the loan’s risk.

“This can be well observed in the fact that the public is forced to take mortgages with longer durations,” he said.

Yet the Finance Ministry’s efforts to halt the increase in housing prices, which includes measures to dampen demand, are starting to bear fruit, and it’s very possible prices could decrease. This would hurt the security on existing mortgage loans, and banks may be forced to suffer more write-offs as a result, Glazer noted.

“Interest rates will not be this low forever, and an increase in the representative rate will increase mortgage payments, increase the price of new mortgages and influence home prices,” he said. “We presume that if the rate of U.S. interest-rate increases pick up, we’ll start seeing the same process in Israel.”