Mortgage Market Sees Strong Growth in August Despite Economic Uncertainty

The Israeli mortgage market continued its upward trend in August, with total mortgages reaching NIS 8.36 billion, according to Calcalist estimates. This marks a 19.2% increase compared to August 2023 and a 32% rise compared to the 12-month average of NIS 6.32 billion.

Market Rebound After Prolonged Slump

The resurgence in mortgage activity began in May, following two difficult years for the housing sector. Interest rate hikes, compounded by the onset of war, had severely dampened the market. Throughout early 2023, monthly mortgage volumes remained between NIS 5-6 billion, with a low of NIS 4.5 billion in October 2022.

However, despite the ongoing war and a resurgence in inflation — which has exceeded the Bank of Israel’s target range — the market has started to show signs of recovery. According to Uri Younisi, head of the mortgage division at Bank Leumi, the uptick is driven by homebuyers’ realization that housing prices are unlikely to drop soon. "First-time buyers, investors, and foreign residents were waiting for a price decrease throughout 2023, but the opposite happened, prompting them to return to the market," Younisi told Calcalist.

August Slows Slightly Compared to July

While August’s mortgage figures are impressive, they fell slightly short of July’s NIS 9.1 billion. Banks attribute this drop primarily to a lower number of working days in August.

A significant driver of market growth is the increase in balloon loans, which reached NIS 1.42 billion in August — 16.9% of total loans compared to 16.5% in July. For context, in April 2022, balloon loans accounted for just 4.7% of the market, totaling NIS 496 million.

Balloon loans are now responsible for half of the year-on-year mortgage market growth. From August 2022 to August 2023, the mortgage market added NIS 1.35 billion, with NIS 643 million attributed to balloon loans. This surge is largely driven by contractor deals, as developers, burdened by rising inventory costs, offer subsidized loans where buyers start repayments years later.

The Bank of Israel has indicated that it is monitoring the trend but does not consider it out of control, noting that balloon loans are being offered only to customers who can meet future repayment obligations.