Watch the video: Has Israel's housing market reached a boiling point again?

At a special event last Wednesday, part of the CEOs' Club of Media Real Estate in cooperation with Leumi for Mortgages and led by Ofer Petersburg, CPA Uri Yonisi, head of the mortgage division at Bank Leumi, presented a fascinating picture of the real estate and mortgage market in Israel.

Yonisi opened the event, which addressed the future of buying groups, and surprised the audience by announcing, "The housing market is once again at a boiling point."

"Housing prices have not stopped rising since 2007," he stated. "Attempts to control them with price plans for residents failed, and in 2022, after the economy recovered from the pandemic, prices jumped by 20%. The lack of a comprehensive and coordinated plan, combined with public belief that prices would continue to rise, created a herd effect, causing a dramatic increase.

"The continuous increase in interest rates since mid-2022 has led to a certain slowdown in demand, but also in the start of new constructions," Yonisi explained. "The gap between low supply and high demand, which remained trapped, continued to grow. Despite the war, or perhaps because of it, buyers decided to get off the fence and return to purchasing apartments. CBS [Central Bureau of Statistics] data confirms this."

"When investors return to the market, which is happening these days, we will see increases"

"We are just days away from the publication of the Consumer Price Index, and the market is boiling," Yonisi continued. "The number of transactions is high. The slowdown and increased interest rates led entrepreneurs to offer subsidy promotions to attract buyers, and it worked, as these promotions allowed for flexibility.

"Investors reduced market activity by 70% due to the interest rate hike, providing some breathing room. This is understandable because there's no need to invest in real estate when the interest rate is 4.5%, higher than the average annual yield of real estate. However, as investors return to the market, which is happening now, we will see increases," he said.

"Additionally, we are seeing a significant return of foreign residents to Israel, with entire communities buying buildings and areas, and mortgage applications have significantly increased in this sector," Leumi's mortgage division head said. "Young couples purchasing their first apartments are the ones absorbing the price increases, interest rates, and prime rate hikes. We are looking for ways to help them."

Yonisi referred to the mortgage market to substantiate his claim of a boiling point: "Until 2021-2022, the average annual amount of mortgages was around NIS 70-80 billion. Since then, it has increased to NIS 122 billion. The gap between supply and demand in real estate continues to expand, increasing the pressure on housing prices. More customers are taking high financing rates, about 25% of total transactions. The public is also extending repayment periods to 25-30 years, and even this might not be enough, necessitating even longer periods."

"Banks are trying to offer more flexible financing solutions, but the main challenge is finding ways for customers to purchase apartments without creating a financial burden. Cooperation among all parties involved is essential to find creative and long-term solutions to manage the increase in housing prices and financial burdens," he said.

"Additionally, the market is active in refinancing, especially for those biased towards the prime interest rate. The increase in interest rates has led customers to refinance their mortgages to reduce monthly payments or change terms."

Has the real estate market become dangerous?

Yonisi also addressed the question of risk in the real estate market: "Has the real estate market become dangerous? The mortgage portfolio in the banks is almost NIS 600 billion, yet there is an 8% decrease between 2019 and 2024, despite a 60% increase in mortgage amounts. This indicates that the market is stable and safe, and the Bank of Israel deserves credit for that."

What is the solution? "We need a comprehensive entity to manage the issue with an emergency plan to lower housing prices, integrating all relevant factors - government, banks, contractors, etc.," he said. "This entity should start with the mindset that everything is possible – only then can it build a successful emergency plan to create a new reality."