The average price of an Israeli home has risen 7.8% over the past 12 months but according to Bank of Israel Deputy Governor Dr. Nadine Baudot-Trajtenberg the real price rise over the past year is 13.5%. This is because financing costs have risen 31%, Baudot-Trajtenberg revealed today in Herzliya at the Interdisciplinary Center Aaron Institute for Economic Policy forum on poverty.
She said that the average apartment costs NIS 100,000 more today than it did at the start of 2015 but the overall cost of buying such an apartment had risen by NIS 229,000. She explained that NIS 36,000 of this rise was due to the rise in mortgage interest rates, while an additional NIS 57,000 was because the average length of a mortgage has risen from 19 years to 21 years. A further NIS 36,500 must also be added to the cost of the mortgage to finance the rise in the home price itself. In addition the mortgage must be linked to the cost of living index.
So why have mortgage costs increased? Baudot-Trajtenberg sees two reasons. "Perhaps because it reflects a higher risk premium or because we know that the large banks have reached the mortgage limit that they want to loan and so there is less competition for mortgages. In other words, the competitive situation in the market has weakened over the past year."
She added, "What is clear is that the situation is worse than it was a year ago especially for households in the lower deciles. Financing costs are a very substantial part of housing expenses so any small change greatly influences households."
Baudot-Trajtenberg said that 10% of income in the average Israeli household goes for financing mortgage interest and a further 10% for financing management services for long term savings. "Any streamlining there translates to major savings for households with an emphasis on low income households. There is room to streamline expenses there."
Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2016
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