Mortgage Demand Down as Housing Grants Approved

Gov't puts last details on plan that would give money to young couples buying homes in periphery.

Have housing prices stopped rising? The demand for mortgages dropped sharply in April - down 24% compared to March - the Bank of Israel reported yesterday, which means the demand for housing may be falling.

Meanwhile, the government approved a plan that would give NIS 100,000 grants to young couples who buy homes in the country's outskirts.

Yuval Steinitz - Tomer Appelbaum
Tomer Appelbaum

The grant applies to people who do not own a home who are buying an apartment in a high-density residential housing project in any of 30 outlying communities designated as National Priority Zone A.

This follows an agreement between Housing Minister Ariel Atias and Interior Minister Eli Yishai, both of them Shas members, and Finance Minister Yuval Steinitz of Likud. Under the program, buyers will receive NIS 60,000 up front and up to NIS 40,000 in infrastructure subsidies. After the agreement was reached, Atias announced that he was withdrawing a bill that would have provided mortgage subsidies.

Critics have said such a program could further push up home prices, harming the people it is intended to help.

Housing Ministry analysts say the new program will cost the state about NIS 400 million, on the assumption that 4,000 couples each receive a NIS 100,000 benefit. The program will be funded by the housing and finance ministries.

Interior Minister Yishai called the agreement a major accomplishment, but said his Shas party's disagreement with its partners in the governing coalition on housing policy was not over.

He expressed the hope that planning and building procedures could be streamlined so obstacles would be removed that would allow 100,000 more housing units to be put on the market in the near future. He also said he hoped planning for an additional 100,000 could be expedited. Yishai called housing assistance for young couples more important than state-funded child allowances.

For his part, Atias said Shas' demands on the housing issue will continue to be asserted. He also announced that in any community in which development costs per apartment are NIS 140,000, the state will increase its subsidy to 85% on apartments sold to young couples.

Reversing trend?

Meanwhile, demand for mortgage financing dropped 24% in April compared to March, with banks extending NIS 3.59 billion in mortgage financing.

The lower demand is thought to ease pressure on Bank of Israel Governor Stanley Fischer to raise interest rates this month. Alternatively, he might increase them less than had been planned. The lowering of expectations of an interest-rate rise was also buttressed Sunday by the latest inflation figures, which were more moderate than expected.

In keeping with the central bank's policy of gradually increasing rates, the average rate on fixed-rate shekel-denominated mortgages rose to 5.86% in April from 5.65% in March. Average rates on variable-rate mortgages rose from 4% to 4.51%. For mortgages linked to the consumer price index, the average fixed rate went up from 2.66% in March to 2.9% in April, and for variable-rate mortgages from 1.71% to 1.82%.

DS Apex chief economist Alex Zabezhinsky attributed part of the drop in demand for mortgage credit in April to the Passover holiday, but that wasn't all. "In addition, it's possible the drop is an expression of moderation in the housing market, which is beginning to be noted in various statistics," he said.

"The housing market is expected to continue to react to various steps by the Bank of Israel; for example, an increase in interest rates, limitations on extending credit, and tax changes carried out by the authorities. We think the peak in the residential real estate market from the standpoint of prices is already behind us."

David Zaken, the supervisor of banks at the Bank of Israel, told Channel 2 last night he is worried about the variable-rate consumer mortgage sector. "You are taking out risky mortgages," he said, addressing Israelis in general.

Loans that currently look inexpensive because they're based on the prime rate could become expensive when interest rates rise. He also took the banks to task for marketing variable rate mortgages, saying they are easy to market at the moment because they're cheap.