The average mortgage by homebuyers has risen 55% in the past two years, according to AMG Financial Models Ltd. In January 2008, the average mortgage was NIS 400,000 for a home in central Israel, and was NIS 350,000 in outlying areas. In October 2009, the average mortgage was NIS 620,000 for a home in central Israel, and was NIS 550,000 in outlying areas.
The revival of the luxury housing market, where the average mortgage is NIS 1.25 million, has helped drive up the overall average mortgage level.
The increase should be a warning sign about high housing prices and whether or not there is a real estate bubble. The Central Bureau of Statistics reports that housing prices rose by 13.3% in August 2008-August 2009, and by 25.7% since January 2007. The global economic crisis has not depressed housing prices in Israel, and sales only dipped in late 2008 and early 2009.
AMG CEO Amit Kaminsky said, "There are two main reasons for the sharp increase in the average mortgage. The first is the rise in housing prices. The second is the very low interest rates now prevalent in the market, which has sharply lowered the monthly mortgage payment, inducing people to take on higher mortgage risk, because they have no problem meeting their monthly payment."
Kaminsky warned, "These borrowers do not always understand the significance of changes in the interest rate market, and they do not thoroughly examine what could happen when the interest rate rises."
A third factor behind the increase in the average mortgage is a land rush by investors scared by the stock market and seeking alternatives to the negligible yields offered by banks.
Published by Globes [online], Israel business news - www.globes-online.com - on October 18, 2009
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