The surprising increase in the interest rate by a sharp rate of 0.75% this evening (Monday) will perhaps be remembered as the most significant step of Governor Amir Yaron in his entire term. In the absence of a government that is able to pass significant reforms to moderate the spike in apartment prices, Governor Yaron had no choice but to take such a drastic step
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It is possible that the current inflation rate of 5.2% per year alone does not justify raising the interest rate at such a high rate and a more moderate rate of increase could be satisfied, but the political uncertainty forces Yaron to take the reins and lead a policy here that can cool down the boiling housing market, and if you want, be the elder The person in charge of the economy.
True, this is a painful step for many households, which means an additional financial expenditure of close to 200 shekels per month on average on the mortgage, and more at the height of the wave of price increases, and during the holiday months when the expenses of households with children increase significantly.
According to the Association of Mortgage Consultants, the average monthly mortgage repayment is 863 shekels higher compared to the period before the first interest rate increase.
Yaron took office about four years ago, and the experts will say that even during the Corona period, he did not take such significant steps as now.
The interest rate increases that started in April this year at a moderate rate of 0.25% at first, then 0.4%, 0.5% and finally 0.75% today, when inflation in Israel is still almost 2 times lower than that of Europe and the USA and inflation expectations for the coming year have decreased and are already within the target range of the Bank of Israel, is a policy that takes into account the problematic political situation in which Israel has been for more than three years.
Just in the last year, the prices of apartments increased by almost 20%, and that was when there was a functioning government here.
The problem is that at this time, it is not clear when a government will be established that will be stable and serve for more than a year in order to outline a policy of lowering apartment prices, and as in any market where sharp price increases are recorded within a short period of time, in the Israeli real estate market as well, crises may arise, originating from inflated values - Therefore, in view of all the above, the governor's step was necessary.
Is he enough?
In the short term it could be a game changer.
The increase in the total cost of the average mortgage by approximately NIS 260,000 in just 4 months is expected to cool the influx into real estate, at least until a functioning government is established that will hopefully begin to address the supply side of the housing market as well.
At the same time, apart from the temporary "cooling" of demand in the real estate market, such a dramatic increase in interest rates may also have some unpleasant side effects. Most of them will, of course, harm households from a low socio-economic status and Benin. Apart from the burden on households in mortgage repayments , the rental prices, which have already jumped considerably, may continue to jump at an even more significant rate. A large part of the apartment renters pay a mortgage themselves, and they will "pass on" the increase in the monthly repayment to the apartment renters, to those who have not been able to purchase an apartment themselves and for whom the apartment dream is getting further and further away.
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