A study by DataQuarry Business Solutions Ltd. for "Globes" has found that the average mortgage payment rose from 33% of the average salary in 2003 to 41% in 2012. The average mortgage payment rose from NIS 2,308 out of the average salary of NIS 6,859 in 2003 to NIS 3,501 out of the average salary of NIS 8,563 in 2011. Home prices have risen steadily since the end of the period of the study, while the average national salary has stagnated. The mortgage burden is just one sign of the average Israeli's debt.
Economists and real estate experts have questioned for years whether Israel has a real estate bubble, and whether Israel's housing market is facing a crash similar to the one experienced in the US in 2007-08, which sparked the global economic crisis.
According to the Central Bureau of Statistics, housing prices rose 185% in real terms in 1999-2012. Aggregate mortgages have skyrocketed in the past two years to an all-time high. A real estate bubble, if one exists in Israel, is not a bubble of prices, but of debt, on the basis of total mortgages and the ability, or lack thereof, of homeowners to repay them.
At the national level, the picture is equally bleak: total household debt rose 242% to from NIS 136 billion in 1999 to NIS 330 million in 2012. Aggregate mortgage debt rose from NIS 89 billion, or 65% of total household debt, in 1999 to NIS 232 billion, or 70% of total household debt, in 2012. Mortgage debt rose 260% in 1999-2012, faster than the 242% growth in household debt, while the average national salary rose just 29% over the same period.
Even when households' non-mortgage debt fell from NIS 60 billion in 2003 to NIS 54 billion in 2004, mortgage debt increased.
A growing proportion of Israelis' salaries is used to repay mortgages, and the public's aggregate mortgage debt has increased disproportionately to the growth in other debts. However, the increase in monthly mortgage payments may also be due to personal decisions by homeowners to shorten the mortgage period.
To calculate how much the public's ability to meet its monthly mortgage payments has eroded, DataQuarry divided the total mortgage debt by the average salary over the years. In theory, if the growth in the average salary correlates with the growth in debt, the public can meet the growth in household debt, and the growth in mortgage debt in particular.
DataQuarry found that this was not the case: debt payments as a proportion of the average national salary rose by 180% in 1999-2012. In 1999, the public's total debt was NIS 136 billion, and the average national salary was NIS 6,323; in 2012, the public's total debt was NIS 341 billion, and the average national salary was NIS 8,791.
Not only has mortgage debt grown as a proportion of total household debt, and mortgage debt grown as a proportion of the average national salary, there has been a disproportionate increase in absolute terms in household debt relative to the average salary. The result is a multifold growth of the debt mountain which the public will have to repay out of an average salary that is not growing fast enough.
Published by Globes [online], Israel business news - www.globes-online.com - on March 27, 2013
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