In the "Monetary Policy Report - July-December 2013", the Bank of Israel today published very worrying figures about the housing market, and made broad hints that a bubble is developing.
"Home prices continued to increase, and in the 12 months ending in October, prices increased by 8%, similar to the annual rate of increase (the rate of increase looking at the past 12 months) seen in each of the last ten months. Further, both the number of transactions and the volume of mortgages stabilized at high levels," the report states. It adds that the number of average salaries needed to buy an average apartment reached an all-time high of 147 salaries in September, up 52% from the 96 salaries in mid-2008. It calls the ratio "the housing cost of living."
The Central Bureau of Statistics, notes that the median salary was NIS 6,541 in 2012, 71% of the average salary in that year. The median home price in 2013 was NIS 1.4 million in the third quarter of 2013 - 91% of the average home price of NIS 1.53 million. This means that the home price/salary ratio is even worse on the basis of the median price and salary than the average price and salary.
For the first time, the Bank of Israel, which blames the government for the rise in home prices, calls the housing shortage a supply shortage, and admits, "In total, over the past three years, the number of building starts exceeded the growth in the number of households. Even though it takes time from the moment construction of a home begins until it is ready for occupancy, this data may moderate the effect on home prices of the shortage of homes that was created as a result of low building volumes in the previous decade. The number of building starts continued to grow this year (NovemberOctober), and increased from about 42,000 housing units in 2012 to 44,000 units this year."
The Bank of Israel says, that notwithstanding macroprudential policies introduced by Supervisor of Banks David Zaken to limit mortgages, "since monetary policy around the world remained highly accommodative, the costs of financing remained low, encouraging households to continue purchasing homes," the measures are partly ineffective.
"The volume of building completions has also continued to increase. This year, 42,000 housing units were completed. With that, the response of housing supply to demand remained slow, the Bank of Israel adds.
Total housing credit has ballooned 70% within seven years, from NIS 169 billion in January 2007 to NIS 287 billion at the end of 2013, an increase of NIS 118 billion. For the sake of comparison, total housing credit rose 23% from 2000 until 2007. "The balance of household credit increased, with the increase taking place mostly in housing credit," the report states, adding, "Housing credit at the beginning of the reviewed period continued to be issued mostly at variable interest rates, and the share of monthly payment in borrowers’ income remained high."
Published by Globes [online], Israel business news - www.globes-online.com - on February 2, 2014
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