A record in mortgages during a slowdown: The figure that confuses the real estate market
Out of 11 billion shekels in mortgages, more than 10 billion are brand new loans. Apparently, a sign of a red-hot market, but the Treasury claims it is an illusion. The contractors' 80/20 deals are coming back like a boomerang, and the Treasury's data reveals what is really happening behind the scenes.
The volume of mortgages for the month of June stood at 11.05 billion shekels. At first glance, this is an excellent figure that should reflect a significant jump in the real estate market. We were used to seeing such data at the beginning of the decade, when apartment prices jumped by 30% in two years in 2021 and 2022. The big question is how this happens during a period of slowdown and how it fits with the numbers showing us a decrease in real estate transactions.
One of the arguments heard on the matter was that it is mainly about refinancing. That is, people see that the interest rate is falling, they refinance the mortgage, and from the bank's point of view, it is a new loan. But is that the case? According to Bank of Israel data, the volume of loans excluding refinancing stands at 10.2 billion shekels - still one of the highest in recent years. On the other hand, in recent months, as the interest rate continues to fall, we are seeing an increase in mortgage data alongside a slowdown in new apartment sales.
In the Ministry of Finance, they attribute this gap to the purchase of apartments "on paper". With second-hand apartments, the buyer takes out a mortgage within a relatively short time, but with new apartments, a purchase "on paper" often causes them to take out a mortgage two or three years later.
The gap between the volume of mortgages and the volume of transactions (data: Ministry of Finance)
In the years 2020-2021, explains Deputy Chief Economist Galit Ben Naim, the volume jumped due to excess demand in the market, but in the last two years this is happening due to excess supply, as can also be seen from the chart above.
According to Ben Naim's chart, there is a gap between the number of transactions signed each month in the free market and the number of mortgages taken out in the free market (including second-hand). While with second-hand apartments, a mortgage is taken out closer to the contract, in 20/80 deals and deals "on paper" in general, the large payment is close to the delivery of the apartment, and therefore some of the people who took out a mortgage now purchased the apartment in 2024.
Ben Naim explains: "In apartments sold with government subsidies, it can be seen that throughout the period the gap between the number of transactions and the number of mortgages is close to zero. Even if it has risen slightly in the last two years, it is still negligible. On the other hand, in new apartments sold in the free market, one can see how the market has turned around".
It can be seen in the graph that during the growth period of the market, there was a negative gap between the number of apartments whose construction began and the number of new apartments purchased in the free market. And thus, for the first time, a large gap "opened" between the number of transactions and the number of mortgages taken out. Ben Naim adds: "With the start of the series of interest rate hikes in 2022, the gap between the number of transactions and the number of mortgages taken out shrank. But not for long. Financing benefits arrived in the market, reaching their peak at the end of 2024. Thus, a large gap opened again between the two data series".
She summarizes the data as follows: "In 2025, the party gradually faded, partly against the backdrop of Bank of Israel restrictions on financing benefits. Thus, the number of new apartments purchased in the free market plummeted by 34% compared to 2024, and the gap gradually shrank until it moved into negative territory".
