Wednesday, August 8, 2012
Property prices on the rebound
The most common home prices were NIS 1.2-2 million in the second quarter, and 35.5% of mortgages were for buying homes in this price range. 12.4% of mortgages were for buying homes for less than NIS 800,000, and almost 30% were for buying homes that cost more than NIS 2 million, a third of which were for homes costing more than NIS 3 million.
The average loan-to-value (LTV) ratio was 58.4% in the second quarter, slightly higher than the 12-month average of 57.9%. This figure demonstrates why Israel's housing market is considered conservative; for the sake of comparison, during the housing boom in the US, most mortgages were granted at an LTV of 80%. Only 6.7% of new mortgages granted in the second quarter had an LTV of over 75%, unchanged over the preceding 12 months.
On the other hand, however, 41.6% of mortgage takers obtained a mortgage with an LTV of over 60%, the level that the Bank of Israel defines as highly indebted. The figure is even more worrying when cross-referenced with the value of the homes bought: 60.5% of people who bought a home for less than NIS 800,000 have an LTV of over 60%. In other words, people with limited means buying less costly home need the largest proportional mortgages to do so. In the second quarter, 37% of people who bought homes for NIS 1.2-2 million needed a mortgage with an LTV of over 60%, and 26.5% of people who bought homes for over NIS 2 million needed such a mortgage. In the second quarter, the monthly mortgage payments of 41% of homebuyers amounted to 30-60% of their income, and the monthly payments of 5% of homebuyers were over 50%. The monthly payments of 54% of homebuyers were less than 30% of their income. If expectations of an economic slowdown are taken into account, monthly mortgage payments could become a serious problem for many households.
Nevertheless, there was no increase in problem mortgages during the second quarter. Mortgages in arrears by over 90 days totaled NIS 2.6 billion, 1.2% of outstanding mortgages. Mortgages in arrears rose by 1% during the first half of 2012, even as total outstanding mortgages rose by 3.7%. This is a historically low figure, implying good news about borrowers' ability to repay their mortgages.