Leumi mortgages chief: Foreigners’ home purchases back to peak

The state needs to formulate a national emergency plan for the housing sector to deal with the rapid rise in housing prices, said Uri Yonisi, head of the mortgage department at Bank Leumi, at the Globes-Bank Leumi Mortgage Conference. “The basic condition for dealing with the crisis is to realize that we are in a crisis,” Yonisi added.

“We have a negative gap between demand and supply, which started in 2005 and has not been closed yet. Our growth rate is about 55,000 families per year, and if we look at supply, we are short of about 230,000 housing units, even when something dramatic happens in the market, as is the case now,” he added.

According to Bank Leumi calculations, housing prices will rise by 10% this year, after falling by 2.2% in 2023, and after an overall increase of more than 30% in 2021-2022.

When the government-backed buyer price subsidy program ended in 2020, people concluded that house prices wouldn’t fall, says Yonesi. They jumped back into the market, causing sharp increases. “In 2023, the market froze. People weren’t buying, but they weren’t selling either, so prices only fell by 2.2%,” Yonesi explains. Buyers then realized that prices weren’t going to fall much, so they jumped back into the market in 2024.

Tenants are in a state of uncertainty, because only 1% of the demand for 830,000 long-term rental homes is met by institutional rents (i.e. state-owned companies called Dera Lehasker or companies that rent out homes as a business). 99% of demand is met by private landlords. This is in contrast to the situation in other OECD countries, where 60% of rental housing is met by institutions and only 40% by private landlords. The result is higher rents.

“Young couples pay the price”

Another source of additional demand is from residents abroad and new immigrants. According to an analysis by Bank Leumi, real estate purchases by residents abroad have returned to the peak they reached in Israel ten years ago. The number of immigrants coming to Israel is also on the rise, and therefore the bank expects significant growth in demand for housing from foreign residents.

Yonesi estimates that new mortgages will total NIS 95 billion this year. That’s about 25% more than the 2023 total, but a similar amount less than the amounts in 2021 and 2022. Given the period and high interest rates, that’s a very high figure.

This has not made the current mortgage market any riskier, says Yonesi. He says that while the home loan portfolio has grown by 66% in five years, the balance of delinquent loans has actually fallen by 4%, and the risk of borrowers not being able to make their loan payments has also fallen.

But the situation is not ideal, quite the opposite. “Young couples are the ones who pay the price, and they are the ones who need to take action, because they are not at the point of equilibrium. They are taking out mortgages of over a million shekels, and they have to save a lot of capital,” says Yonesi, adding that the entire family is joining the effort to help the young couple get the capital they need.

“We are at an extreme point,” warned Younesi, noting that the sharp price increases affecting the housing market amounted to an economic and social crisis. He added that the state must develop an emergency plan to deal with the crisis, which requires recognizing the reality of such a crisis.

Yonesi recommended that the government appoint a person responsible for formulating and implementing the plan. He said that first and foremost the supply of housing units should be increased to 75,000 units per year. This is a very high goal, considering that at its peak the Israeli market was unable to produce more than 67,000 new housing units per year.

Urban renewal projects should be expanded, long-term rental projects encouraged, the country’s infrastructure improved, the mortgage market deregulated, and more assistance provided to young people, Yunisi said.

This article was published in Globes, Israeli Business News – en.globes.co.il – on September 23, 2024.

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