Waiting anxiously: according to the forecast of most economists, the Bank of Israel is expected to raise the interest rate by a sharp rate of 0.75% to 2.75% tomorrow at 16:00.
This is the fifth consecutive increase by the Bank of Israel, which is trying to curb the annual rate of inflation in Israel, which reached a level of 4.6% last month.
The interest rate is expected to continue to rise up to the level of 3.5%, and the governor's goal is to reach a positive real interest rate (the Bank of Israel interest rate minus inflation).
The interest rate in Israel is expected to rise sharply even though the annual inflation rate is almost twice as low as in the US and the Eurozone, and the reason why the Bank of Israel still pursues such an aggressive interest rate policy is rooted in the governor's desire to bring the interest rate to a high level quickly (front loading countries). Moreover, in the last two weeks the dollar has strengthened very much against the shekel, by more than 6%, to the level of 3.56 shekels, which makes the products imported to Israel more expensive and thus increases the inflationary pressures.
"The Bank of Israel is unable to influence the shekel, which forces it to raise interest rates more strongly in order to increase the restraining effect through the other channels," says Alex Zbzinski, Chief Economist at Meitav Investment House.
"Although the Bank of Israel does not publicly accept responsibility for apartment prices, it will surely take into account the sharp increase in apartment prices in recent months," he adds.
On the other hand, Zabrzynski points out that for the time being in Israel there are only slight signs indicating a slowdown in the rate of growth.
A new line in real estate?
Bank Leumi also estimates that the most likely is a 0.75% increase in the interest rate, partly due to the continued aggressive monetary tightening in the world.
Let's recall that two weeks ago the Federal Reserve Bank in the USA raised the interest rate by 0.75%, and the Fed members' interest rate expectations for 2022 were updated to 4.4% and for 2023.
Dr. Gil Michael Bafman, Leumi's chief economist, and Dodi Reznik, interest rate strategist at Leumi Capital Markets, believe that the continued increase in the Bank of Israel interest rate, together with the expected increase in the supply of apartments, are expected to moderate the rate of increase in apartment prices.
"The annual rate of increase in apartment prices is at a peak, and is significantly higher compared to the rate of increase in rental prices. However, looking ahead, it seems that the rate of increase in apartment prices is expected to moderate in the coming months and price decreases are also possible in 2023, in parallel with the continued increase in the annual rate of rental prices .
"This development is against the background of the fact that the rate of apartment sales, which reached a peak during 2021, is gradually beginning to decrease, among other things due to the increase in interest rates in the economy as well as due to the heavy taxation on real estate investors, who have reduced the scope of their activities as a result," the two wrote in their weekly review.
The monthly repayment is rampant
Following the sharp increase in interest rates, the monthly mortgage repayments are starting to go wild, and quite a few households, especially young couples who recently took out a mortgage with a high prime rate, feel that they are about to lose control of the mortgage.
Elad Danon, joint CEO of Mashavim Mortgage and Finance, says in a conversation with Israel Hayom: "The Bank of Israel actually allows banks to give customers up to two-thirds of the total loan at the prime interest rate, and so in fact the banks, as long as the interest rate was low, offered customers Low monthly repayments.
Because of this, many customers chose this option because they wanted to fulfill their apartment dream.
"The problem is that most of them didn't understand that this was a static situation, and as evidence - as soon as the prime interest rate went up, the monthly repayments of everyone who took out a loan jumped like crazy and surprised them. The right thing to do is to check the monthly repayments, and if necessary carry out an updated mortgage cycle and even consolidate additional loans , if they exist, which corresponds to the true repayment capacity of the borrowers - and thus avoid a financial pit."
"Leaving us behind"
The time of anxiety: Omar and his partner Nofer, married with a child, purchased a 2-room apartment in Modi'in last year at a price of NIS 2,100,000.
They took out a mortgage of NIS 1,400,000 and arrived with equity of half a million.
As part of the process, they took a non-bank loan (supplementary) in the amount of NIS 200,000.
Their mortgage repayment increased from NIS 6,200 to NIS 6,800, and the supplementary loan increased by NIS 200.
The current jump in interest rates actually increased their monthly repayment by NIS 1,000.
Omar says: "At no point did we imagine that our average interest rate would rise so quickly and sharply. This is an increase from 2.8% to 4.5%. Our monthly repayment increased by more than NIS 1,000. The feeling is that the regulator and the state do not care about the young couples, and they leave us behind without any real desire to provide solutions and balances.
"After pushing most of the young couples who managed to get an apartment to take out non-bank loans because of the strict requirements of the mortgage, they are now dealing another blow with a particularly sharp increase that will add to the burden of living."
"Abandoning the young couples",
Even for Liora, 42 years old, divorced and mother of two, the situation is very worrying.
"I bought an apartment after I got divorced at the beginning of 2021 in Ramat Gan. I actually had to sell my part of the apartment that I owned together with my ex-husband, and take out a new mortgage when I support two children alone," she says.
"I took out a mortgage of 800,000 shekels, and according to the calculation, the monthly payment was supposed to be around 3,500 shekels. Recently this amount jumped to 3,800 shekels, add to that the expenses of electricity, water and property taxes - suddenly it goes to a third of the salary. This is a very significant increase of 300 shekels a month and almost 10% of the monthly payment. 300 shekels is another class for my children or another pair of shoes that I won't be able to buy. Even so, it is very difficult to raise children and make a decent living."
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