Israel's real estate market heating up
Bank of Israel: NIS 4 billion in new mortgages were taken in each of May and June, 18% more than the 12-month average.
Households' mortgage portfolio totaled NIS 212.5 billion at the end of June, up 3.7% from the end of 2011.
The average new mortgage was NIS 578,000 in the second quarter. Notwithstanding the market's volatility, the average mortgage has been stable, rising 3.5% compared with the first quarter. The average mortgage period of 20.7 years did not change over the preceding year.
The most common home prices were NIS 1.2-2 million in the second quarter, and 35.5% of mortgages were for buying homes in this price range. 12.4% of mortgages were for buying homes for less than NIS 800,000, and almost 30% were for buying homes that cost more than NIS 2 million, a third of which were for homes costing more than NIS 3 million.
The average loan-to-value (LTV) ratio was 58.4% in the second quarter, slightly higher than the 12-month average of 57.9%. This figure demonstrates why Israel's housing market is considered conservative; for the sake of comparison, during the housing boom in the US, most mortgages were granted at an LTV of 80%. Only 6.7% of new mortgages granted in the second quarter had an LTV of over 75%, unchanged over the preceding 12 months.
On the other hand, however, 41.6% of mortgage takers obtained a mortgage with an LTV of over 60%, the level that the Bank of Israel defines as highly indebted. The figure is even more worrying when cross-referenced with the value of the homes bought: 60.5% of people who bought a home for less than NIS 800,000 have an LTV of over 60%. In other words, people with limited means buying less costly home need the largest proportional mortgages to do so.
In contrast, wealthier people need to take on proportionately less debt to buy more expensive homes. In the second quarter, 37% of people who bought homes for NIS 1.2-2 million needed a mortgage with an LTV of over 60%, and 26.5% of people who bought homes for over NIS 2 million needed such a mortgage.
In the second quarter, the monthly mortgage payments of 41% of homebuyers amounted to 30-60% of their income, and the monthly payments of 5% of homebuyers were over 50%. The monthly payments of 54% of homebuyers were less than 30% of their income. If expectations of an economic slowdown are taken into account, monthly mortgage payments could become a serious problem for many households.
Nevertheless, there was no increase in problem mortgages during the second quarter. Mortgages in arrears by over 90 days totaled NIS 2.6 billion, 1.2% of outstanding mortgages. Mortgages in arrears rose by 1% during the first half of 2012, even as total outstanding mortgages rose by 3.7%. This is a historically low figure, implying good news about borrowers' ability to repay their mortgages.
Nonetheless, it should be remembered that when a family falls on hard times, the mortgage payment is the last thing to be affected, and families will sacrifice almost anything else first. It is quite possible that as the economic situation deteriorates and unemployment rises, there could be a jump in mortgages in arrears as borrowers run out of options to repay them.
Published by Globes [online], Israel business news - www.globes-online.com - on August 7, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
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