Israeli mortgage market in 2023 and 2024 prospects

February 17, 2024 / 112 views
Alin Goldshtein
February 17, 2024 / 112 views

After years of brisk activity in Israeli mortgages during the last 20 years, the mortgage market came to a screeching halt in 2023. The banking system estimates that there was a recovery in December compared to recent months, with mortgages taken out in the amount of over 6 billion NIS. During 2023 mortgage market experienced a 40% drop compared to the amount of mortgages taken out in 2022. The sharp decline was mainly due to the interest rates, which continued to rise in the past year, bringing the prime rate to 6.25%.

Is it the war or the interest evironment?

Despite the war being the most dramatic event of the past year, what had a significant impact on the real estate and mortgage market was the interest rate. For example, while in January of last year, the average interest rate on the fixed non-indexed track was 4.9%, in November it reached 5.3%. This increase was due to the rise in interest rates. TAO Real Estate provides mortgage consulting services to match the right mortgage for your needs and negotiates the best terms at the various banks on your behalf. Click here for more information on the service. 

The number of transactions has decreased significantly, even before the war. Investors, who now see risk-free savings options of 4%-5% per year, are reducing demand. In addition, we also see a downward trend in the demand for home improvement and the secondary market – buyers are reading that housing prices should go down, so they are waiting. Homeowners are receiving low offers on their homes and are refusing to sell. This is a significant development, as it indicates that the slowdown in the housing market is not solely due to the war, but also to other factors, such as the rise in interest rates and the availability of alternative investment options. The impact of this trend on the housing market is still unclear. On the one hand, it could lead to a decrease in housing prices, as sellers may be forced to lower their asking prices in order to attract buyers. On the other hand, it could also lead to a decrease in the supply of homes for sale, as homeowners may be reluctant to sell at a loss.


Let's check the first hand real estate market

In recent months some of the developers chose to reduce prices on the first 7-10 apartments (pre-sale prices) in order to reach the required capital flow needed to secure bank loans for the project. However some developers are not offering discounts on apartments, but instead are amortizing and subsidizing mortgage interest for buyers. This is a type of ‘alternative discount’. In the months leading up to the war, there were more transactions in new apartments.

This is an interesting trend, as it suggests that developers are still willing to sell apartments, even at a lower profit margin, in order to keep the market moving. It also suggests that buyers are still interested in purchasing apartments, even though they are aware of the risks involved.

Additional factors we might consider

Finally, there are the foreign residents, from whom we feel an increase in interest, even before the war. Already the developers are talking about groups from within communities that are buying apartments in the project, and even an entire building in the project. TAO Real Estate specializes in premium community services where we customize housing solutions to our clients’ needs as a community, whether it’s a community that wants to make Aliyah together and purchase an entire project or several apartments in a project. Click here for more information on the service. 
In the months leading up to the war, we saw a moderate increase in the level of transactions and mortgages. In October, of course, the landing came and now we are seeing a recovery. November was a better month than October, and I estimate that December will be better than its predecessors. This is a positive sign, as it suggests that the housing market is starting to recover from the impact of the war. It is also encouraging to see that foreign residents are still interested in investing in Israeli real estate.

What should we expect from 2024

At the beginning of the year, we should see slight price decreases, until the developers are able to get rid of the high stock of apartments in their possession. The effect of the decrease will occur with different intensities and in different ways in different places around the country. Then,  in the second half of the year, the trend is expected to reverse – and prices will rise because the pace of land marketing and construction starts has slowed down significantly, which will lead to a decrease in supply. All of these are highly dependent on the development of the war situation and its impact on the economy as a whole.

So, it is likely that we will see a decrease in housing prices in the near future, as developers try to sell off their existing inventory. However, it is also possible that prices will start to rise again in the second half of the year, as the supply of new homes decreases.

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