The uphill battle of Israel’s first-time home buyers
“We started looking for an apartment a year and a half ago. We already shook hands on two deals that made it to the draft contract stage, but in both cases the sellers changed their minds about the price after we had already agreed on it in principle,” says Reut (not her real name), who, with her significant other, is looking for an apartment in the center of the country.
“It was very tough,” she continues. “Since then, we’ve continued looking, but we’ve seen prices spinning out of control. With the increase in interest rates, we realized that it would be better to take a smaller mortgage than we had intended. Prices went up while our budget shrank. We decided to put our search on hold and hope that prices come down. In the meantime, we’ve noticed that supply has gone up, but apartments still remain without buyers for a long time. However, there hasn’t been a change in prices yet, so we’re still renting.”
Reut and her partner are not alone: 2022 was a crazy year in the real estate market. Prices rose by 20 percent, and interest rates went up from 0.1 percent to 3.25 percent, contributing to monthly mortgage payments spiking by hundreds of shekels. All of this happened even though potential buyers do not have more money on average, pushing many of them out of the market. “It’s a pincer movement that ultimately closes off financing options from all sides,” says Elad Kuperstein, the owner of Kupri Capital Management.
“When clients come for mortgage advice when buying an apartment, we check the family’s financial status. Over the past year we’ve had more cases where we had to tell people that they won’t be able to handle the monthly payments, even if the bank approves their application for a mortgage. They would simply go under by the end of the month,” says Kuperstein. “There is a growing phenomenon of clients wanting to purchase an apartment but not meeting the bank’s financial requirements, which state that monthly [mortgage] payments are no more than one-third of the family’s net income.”
In some cases, says Kuperstein, clients were preapproved for a mortgage and have signed a contract for an apartment under construction. But when they go to the bank to finalize the mortgage, they discover that the monthly payments have increased because of the change in interest rates, and the ratio of the monthly payments relative to their income no longer meets the bank’s requirements – and the bank refuses to give the loan. “In such cases, one option is to bring in guarantors for the mortgage, usually the parents, and they chip in with some of the monthly payments. Another option is to take out a lower mortgage,” explains Kuperstein.
“People who are already in the middle of the purchase process will in most cases go ahead and buy the apartment, even if they know that they will be at their limit, unless the higher mortgage payments are really beyond their means,” says Tomer Varon, a mortgage and finance adviser at Riseup. “In contrast, people who come to me at the beginning of their journey, wanting to understand what they can afford, have received a much less rosy picture over the last year. I can see at our meetings how much I disappoint them. People don’t understand why, when they’re making decent money and have savings, and sometimes they also have parental help, they still can’t purchase an apartment.”
This is the precise question asked by Gali (not her real name), who with her spouse is looking to purchase a house in the Lower Galilee region. “We’ve been looking since 2019. There were several realistic deals that slipped away for various reasons, but until now, they were priced at up to 2 million shekels ($560,000). Over the last year, there have been no homes under 2.5 million shekels,” says Gali. “A few months ago, we started moving forward with a deal in Kfar Tavor to buy an old 80-square-meter (861-square-foot) detached house on a 650-square-meter plot. The asking price was 2.6 million shekels, even though we know it was selling for 2.2 million only a few months earlier.
“The purchase was progressing, but we pulled back at the last moment. We concluded that paying such a large amount for a dilapidated building with a little bit of land, near the Bedouin village of Shibli, was a mistake. With mixed feelings, we let it go, and we know the house was purchased soon after. Since then, prices have only been rising further. We have some savings and help from our parents, totalling 800,000 shekels, but that isn’t enough for anything.
“We’re now living in a rental property, and we’re moving to a rented house in Poriya Ilit, which will cost us 5,000 shekels a month. We’ve saved money for buying a house, but this is money that’s been losing value over the last two years. In the end, we decided to invest a lot of it, since we realized that buying a house is not going to happen anytime soon. In the meantime, we’re still looking. We’re registered for expansion projects at every kibbutz and moshav in the area, but that isn’t easy. We regret not having bought some land like that two years ago, in the community of Masad. The plot cost 300,000 shekels then, and now people are selling it for 800,000 shekels.”
Keeping your liquidity
Rising interest rates have hurt people taking out mortgages or loans, but anyone deciding to wait to buy an apartment could actually benefit from the interest rate increases. “Interest rates have an advantage when it comes to solid short-term saving accounts,” explains Varon. “You can put your money in a cash fund or some other type of deposit, bearing in mind not to lock it in for too long, so that in case you do find a suitable apartment, your money is available. If you think you may need the money in half a year or a year, or even in a year and a half, there’s no point in investing all your capital in the stock exchange. The goal is to keep your money from eroding in value, and to maintain it as a liquid asset.”
When the coronavirus pandemic drove Tamir Suissa and his family out of Tel Aviv to Kibbutz Gilgal in the Jordan Valley, where he grew up, he was confident that within a few years he would be living in the house he was planning to build. “We were accepted as members by the kibbutz and we bought a half-dunam [0.12-acre] plot to build on. The dream of a house felt so close, since the land wasn’t expensive,” he says. “All we had to do was get a mortgage and build the house. We came with 350,000 shekels in savings, and applied for a mortgage of between 600,000 and 700,000 shekels. But then interest rates started climbing and we realized such a home was unrealistic for us. We didn’t want to build a smaller house, so we’ve decided to wait for now, until mortgage interest rates return to a more reasonable range, and then build our dream house.”
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In the meantime, Suissa found another solution for the capital the family planned to use as a down payment on the mortgage: They bought a house in Greece. “We bought a house that needs renovating. We’ll do that and then try to sell it at a profit,” he says. “The goal is to make a few extra tens of thousands of shekels, which will boost our savings.”
He says that he and his family still live on the kibbutz. They rent a house for 2,000 shekels a month, including utilities. “We prefer to continue renting and save something each month,” he explains. “We now live across from the plot we purchased, and that saddens us a lot. People who came two or three years before us already have their house. There are a few other families in our situation here, and this is a problem for the kibbutz – having plots no one is building on. We talked to them and they understand the problem. We’re all waiting to see what happens.”
Priced out, even with a discount
Nearly 30,000 people won a lottery for subsidized apartments in 2022 as part of government programs like Mechir Lemishtaken (“Buyer’s Price”), which offer winners discounts from 350,000 to 1 million shekels on their first apartment. The apartments are usually situated in desirable neighborhoods, but despite the bountiful subsidies, not everyone who won the lottery can actually buy a home. Maor Ohana, the CEO of Our Way, a chain of mortgage consultants, says that many people won the government lottery only to find that climbing interest rates don’t allow them to complete the purchase. According to his company’s estimates, this is the case for 15 percent of lottery winners. “When interest rates were very low, monthly payments were lower and many lottery winners used non-bank loans to complement their funds,” says Ohana. “Now that interest rates are higher and loans are more expensive both through banks and other sources, banks are not approving mortgages since monthly payments have also gone up, and now make up a larger proportion of people’s monthly incomes.”
“For a mortgage of 1 million shekels over 30 years, the monthly payment has gone up by 1,500 shekels over the last year. This is not a negligible amount for young families, and despite the profitability of buying an apartment through government-subsidized programs, people have to walk away from these deals.”
Sapir Sabag, who won the Mechir Lemishtaken lottery for an apartment in Carmiel, has experienced this personally. “I got an email telling me I had won the lottery for an apartment. At first I was delighted; I felt as if I’d won some cash. But then they explained to me that I had won only because someone else had pulled out, and that the remaining apartments were garden apartments, and that I was the last to choose. We’re a young couple with a baby, and what was being offered to us were 3-room apartments for 1.9 million shekels, or 2-room apartments for 1.4 million shekels, with a 250-square-meter garden. I have no use for such a large garden. We were tempted, since this was part of the government’s Mechir Lemishtaken program, and we’d finally won the lottery. But we didn’t have the money. It takes a lot of guts to take out a mortgage for 1.9 million shekels. You can’t keep up with those kinds of payments.”
The Sabags got married two years ago and had decided to wait and save money before purchasing an apartment. In retrospect, says Sapir, that was a mistake. “By waiting we lost out. We thought that if we increased our down payment, we could pay less in mortgage payments, or buy a larger apartment. We didn’t know prices would spike that much. Now we live with our parents, since you can’t save money and pay for rent and childcare.”
Despite the dismal reality many Israelis have encountered over the last year – and perhaps because of it – 2022 ended with screeching brakes in the real estate market and a cooling of the mortgage market. According to Bank of Israel data, the average mortgage taken out by apartment buyers in December 2022 was 951,000 shekels, a 4 percent drop from the previous month, and a 9 percent drop from the record set in October 2022.
Perhaps the housing crisis has changed its focus, moving to the rental market. The rise in interest rates, which affected buyers’ ability to take out a mortgage, is now putting pressure on owners who rent out their properties to raise rents to catch up with increased interest rates. According to data published by WeCheck in 2022, the cost of renting in Israel rose by an average of almost 12 percent versus 2021. In some cities, rental prices rose by more than 20 percent. Perhaps the calm in housing sales is good news for people whose dream of a house slipped through their fingers over the last year, and they can now try their luck again. But for those who gave up their dream for now and decided to keep renting, it could prove to be a double whammy.