BoI: Mortgage costs rising faster than income

The percentage of people investing in buying apartments overall in 2013 was the lowest it has been since 2003.

Bank customer hapoalim370 (photo credit: REUTERS)
Bank customer hapoalim370
(photo credit: REUTERS)
Nearly two years after the last social protesters packed up their tents on Rothschild Boulevard in Tel Aviv and five years since the housing bubble burst in the US, sending Lehman Brothers crashing, the Bank of Israel on Sunday reported that increases in monthly mortgage payments were outpacing salary growth and therefore increasing credit risk.
“Due to the sharp increase in mortgage sizes in recent years, the average monthly payment for new mortgage borrowers increased at a higher rate than the increase in average household income,” Bank of Israel researchers Golan Benita and Ziv Naor wrote in the report.
“This development led to a marked increase in borrowers’ risk levels in banks’ housing credit portfolios, which was reflected by a sharp increase in both mortgage borrowers’ payment to income ratio, which is currently high compared with other countries, and the share of high-risk mortgages.”
Between 2008 and 2012, the average home price skyrocketed 54 percent, while average household income rose by only 20%.
According to the study, an economic shock such as a sharp spike in interest rates, a recession and increased unemployment would increase the risk of default rates, making it difficult for banks to sell a large number of properties.
“This development is liable to lead to an additional sharp decline in home prices and to make banks’ credit losses more severe, as occurred in financial crises in other countries,” the report said.
Federation of Israeli Chambers of Commerce president Uriel Lynn brushed aside the report, saying the banking system was stable.
“Even if extreme conditions occur, the banks will have enough of a safety margin to protect the stability of the banking system as a whole,” he said.
The historically high mortgage rates, however, did not deter new home buyers in the past quarter. Last week, a Finance Ministry report found that 32,000 homes were bought in the second quarter of 2013, up 24% from the previous quarter and a record high since data started being collected over a decade ago.
The percentage of investors buying apartments overall was the lowest since 2003.
Investors were buying and selling homes mostly in the Tel Aviv region, while Jerusalem and Hadera led the way for young couples purchasing homes. Hadera benefited from increased land put on the market in Harish-Katzir, while Jerusalem benefited from a NIS 100,000 homebuyers grant.
Globes contributed to this report.