Understanding Mortgages in Israel

Real Israeli Mortgage Rule #5--Consolidate Debt Early

2011-12-20T16:43:00.000+02:00

I haven't written a Rules article for a while. As more and more of my clients are asking about debt consolidation, I need to address this.

It is possible in many cases to get a debt consolidation loan using your home as collateral. This makes a lot of sense for many reasons: it reduces your monthly payments, the interest on a mortgage is much lower than the interest on corresponding loans and the amount of time over which your loan amortizes can be much longer.

However, mortgages are not simple, not without cost, and not quick. We also have to be more cautious than usual with the banks, as your being between a rock and a hard place is a prime opportunity for the bank to profit. Bank A is more than happy to relieve your debt from Bank B, but they see no point in offering you even their second best rates. We need to tell your story properly and bring it to the right branch of the right bank (this will differ from borrower to borrower). We still won't get you a deal like a purchase loan, but it will be under much better conditions than consumer debt.

Why are they still offering more debt?

It's amazing that we still hear the commercials on the radio encouraging us to take "just take 40K" as if it were a gift. The rates being charged are amazing, prime + 4.5, 12%, or even worse. If you have anything on "credit" from the wonderful credit card companies, you are likely paying even higher. Expect similar rates on your overdraft.

The most important part about a debt consolidation loan is that you need to get it well before you need it. The banks don't really care about your property too much. So long as you are within their lending guidelines, they'll make the loan.

What they really care about is the financial competency of the borrower. Can you make the payments? Do you have a history of missing payments? Is your credit history clean? Is this loan a one-time reset of your financial situation which will put your house in order?

It's OK if you have some overdraft. It's OK if you have some debt. However if you have been missing payments on debt, it will be difficult to refinance you into a bigger loan. If there is a good chance that you will need a loan, the time to refinance is as early as possible.

Real Israeli Mortgage Rule #5: It's OK to get a debt consolidation loan, but you have to get it before you need it.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Your mortgage and the daf yomi

2011-12-13T15:26:00.000+02:00

The page of Talmud that was studied today by Jews all around the world in the "Daf Yomi" (daily page) study system, was Maseketh Bikuroth, page 29 in the Babylonian Talmud. We started here at the very bottom of the page and continued on the next page:

משנה: הנוטל שכר להיות רואה את הבכורות אין שוחטין על פיו אא"כ היה מומחה כאילו באילא ביבנה שהתירו לו.

גמרא: ....בשלמא בעל מום משום דקא שרי ליה אלא תם אמאי דאם כן אתי למיחשדיה ואמרי, האי בעל מום, תם הוא, והאי דקא שרי לי משום אגרא

[Translation of Gemara from this site (pdf of the specific text): MISHNAH. IF ONE TAKES PAYMENT FOR SEEING THE FIRSTLINGS, THEY MUST NOT BE SLAUGHTERED BY HIS INSTRUCTIONS, UNLESS HE WAS AN EXPERT LIKE ILA IN JABNEH WHOM THE SAGES PERMITTED TO ACCEPT FOUR AS FOR SMALL CATTLE AND SIX AS FOR LARGE CATTLE, WHETHER UNBLEMISHED OR BLEMISHED.

gemara...WHETHER UNBLEMISHED OR BLEMISHED. Now, we quite understand this in the case of a blemished firstling, because in this case he permits it; but in the case of an unblemished firstling, why (does he take payment)? — The reason is that otherwise he might be suspected, and it might be said that the animal pronounced blemished is unblemished, and the reason he permits it is because he receives payment.]

Can we eat the calf? Not if we are relying upon the bank.

I never studied Torah in English. Quite frankly it looks a little corny to me. I understand the Aramaic better than I do the English. I'll try to work with what I have here. We are discussing whether or not it is OK to eat a first-born cow after it was pronounced blemished by a paid expert. Why? Because we fear that the expert will feel obliged to pronounce the cow blemished, otherwise he will be endangering his business.

[If the first-born offspring of a cow or sheep is a healthy male, then it must given to a Cohen. If it has some sort of permanent problem, then it remains with the owners. Therefore it is very lucrative to have your calves proclaimed "blemished" by "experts".]

My father recently wrote to me about problems with his dentist. It seems that every time he goes for a visit they want to remove another tooth. Have you ever taken a tire into to be checked? More often than not you need to replace at least two tires if not all four if you rely upon the advice of the guy "fixing" the tire.

When you go into your bank, it is exactly the same. The mortgage clerk at your local bank is paid by the bank, not you. His interest is the bank's interest, not yours. Despite whatever kind of nonsense they may say in their radio ads, they are trying to sell whatever products are the most profitable for the bank, not for you. Unlike us at Nahala Home Mortgages, where we get paid exclusively by our clients. Our only interest is the client's interest.

If you are considering taking on hundreds of thousands to millions of shekels in debt, this is not the time for cutting corners. Don't rely on your bank's advice, and don't rely upon what you heard from friends or read on the internet.

Every case is different and needs to be planned differently. You should always consult your qualified Israeli Mortgage Advisor before you make any decisions.

Limit your exposure to the Euro with a home in The Land

2011-11-17T13:09:00.001+02:00

Greece was just a prelude. As I have been saying for years, and repeating every few months, the Euro is a mess and getting messier. Greece's economy is minuscule compared to big countries like Italy. When Greece has problems the world is concerned. When Italy has problems, the world shivers with fright.

Greece's economy, according to official EU stats, is around 2.5% of the Eurozone, or 1.8% of the EU member states. Italy sports the world's 8th largest economy, 17% of the Eurozone, or nearly 13% of all of Europe. You can play around with the numbers yourself at Eurostat, the home of European statistics. The specific numbers that I used are available here. If you are an American or a former American think that Greece is like Rhode Island, and Italy is like California.

Greece and Italy will have new governments. Both countries are offering economists in an effort to calm the world. I won't pretend like I know who these people are, I only know what I know from the press. Italy's Monti looks like exactly the type of Eurocrat that got us into this mess to begin with. His main accomplishment in life was in developing and strengthening the Euro and in suing Microsoft. As I write these lines he is preparing to introduce his first lot of reforms to the Italian Senate. The yield on Italian bonds just went back up over 7%, meaning the markets have little faith in his success.

Greece's new man is Lucas Papademos, another economist who features great accomplishments such as being Greece's version of Stanley Fischer and a proud vice-president of the European Central Bank. [Meanwhile Greek students continue to violently protest. They ask for "Bread, Education and Freedom". I don't know if this translates well. I think they mean "freedom from" as in freedom from responsibility, working, etc., rather than "freedom to" such as freedom to work, freedom to prosper, freedom to disagree with the leftist mob, etc.]

These guys have come to bury Europe, not save it. Who got them into their mess? What did their central bankers do while Europe spent the next two generation's income? If these are the guys who are going to save the Euro, I say jump ship as soon as possible.

Let's say you have an Israeli mortgage which is indexed to the US$. At this point I really can't guess what is going to happen in the short term with the shekel-dollar exchange rate. My feeling is that the dollar will rise slightly only because the Euro is crazy and the dollar is regaining its luster as the coin of reserve. If you have income in dollars, I would probably leave my mortgage indexed to dollars because of uncertainty. Most other people should consider refinancing into mainly shekel based loans.

Italian olive oil. Olives are the sleeper
statistic that we should be watching.

But what do you do if you live in Europe, are a proud member of the Tribe, and are concerned about the solvency of your Euros? Can we protect your savings?

All members of the Tribe should have a home in The Land, and we pray that they will have the courage to eventually live here full time. A lot of our brethren from European Babylon have already purchased a home in The Land, most of them paying cash. Most of these homes are currently worth a whole lot more Euros then they were when purchased.

Here is my suggestion: buy additional properties in Israel. Transfer some money to Israel, or you can even mortgage a property that you already own here. For most properties, the payments on a 50% loan-to-value mortgage can be covered by a typical rent.

We have a huge variety of mortgage types available that will help protect your investment and balance out market uncertainties.

Don't try to protect your money by just buying a flat in Israel. Protect your money by buying two! Buy each of them with a 50% mortgage which will be paid by the incoming rent. Not only will you be protecting your money, you will be preparing for your future. Once you eventually come Up to The Land, the additional flat will provide you regular shekel income, a place for your kids to come live.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

So much for not slipping on the Greece

2011-11-01T11:54:00.002+02:00

It sure didn't take long for the Greeks to not save Greece.
http://mobile.nytimes.com/2011/11/02/world/europe/markets-tumble-as-greece-plans-referendum-on-latest-europe-aid-deal.xml
They're going to take a referendum. The question will be:
Would you rather:
1. Adopt really tough austerity measures, getting less while paying more, and save the Euro and Greece's good name. OR
2. Default on your sovereign debt, continue milking the next generation until complete collapse (it won't take long with no ability to borrow), destroy the euro and enjoy another short period of the easy life.
I'm taking bets on number two winning the referendum.

What do you get if you take away 500 and add 1000?

2011-10-27T16:29:00.004+02:00

The title is not a trick-math question. The answer is that you get 500 more.

In this case the 500 is billions of Euros.

EU leaders have announced that they have made a deal to "save" the Euro.

Here is a summary of the plan as I understand it:

The Eurocrats think that the economy is one big game. It isn't a summer camp game

or a reality television show, it is the real world and their silly climate and socialist games

are ruining lives. It shouldn't surprise us to see the state of their economy.

The European Financial Stability Facility will be increased by a 1 Trillion Euros. At the same time, banks will erase half of Greece's debt. This means that banks will erase 500 B in Greek bonds.
[Somehow the Greeks thought that this was not a good deal for them. It's kind of like a bank saying to you, "You can't make your mortgage payments because you're spending too much money on ski trips, cigarettes and a 4x4 that's never been off road, no problem, let's just say you owe us 500K instead of 1M."]

How many Euros are there anyway? We have different ways of measuring the supply of money. The most appropriate to answer this question is the measure called M3. You can see the official amount of Euros in existence in this document, published by the European Central Bank. If you scroll down to the very bottom of the document, you will find the number we are looking for: 9,817,812,345,678 more or less. They are going to wipe around 500 B off of this number, whilst adding 1T at the same time. So in the end, they are diluting the flimsy Euro by 5%.

In the very short-run, this will bolster the Euro and the stock markets. They have already factored in the possibility of a Euro-collapse, so a 5% dilution seems like good news.

In the long run, it is really bad news. The way to deal with Europe's crushing problems is a massive roll back of socialist programs. Instead, occupiers and rioters want an increase in social programs, and governments will have a hard time replacing socialism with freedom. If it costs them 5% just to set tiny Greece right, what will happen when Italy or Spain fails? How much will they dilute their coin then?

Europe has stymied economic and scientific growth through superfluous regulation. They have sacrificed innovation at the alter of European Cooperation and bad science. Rather than printing money, why don't they just ax this ridiculous program, 500K saved! We can easily find another 1000 such programs and save Greece much more easily.

Climate change and green jobs have squandered hundreds of billions and crushed economies. If you don't follow US news, try googling "Solyndra". This is just one of a long list of examples that would be hilarious if they weren't true. Unfortunately the story in Europe is far worse.

The road to recovery will not be easy. It will probably be impossible to undo all socialist programs quickly, but they need to start. More importantly, they need to remove the artificial barriers that have crushed European science and industry. Can they do it? I think not.

The Euro continues to be crud, and we continue to believe in its long term crudiness.

Who should refinance now?

2011-09-22T16:11:00.002+03:00

Is it time to refinance? For many of our clients, the time may be right.

For most of you in the middle of the road, this is the time to stay put. If you want to save a few hundred shekels a month, now is not the time. However, if:

You know that you are happy and that there is little chance that you will want to refinance any time soon. Or,
You don't mind a speculative short term play that you might have to refinance some time soon. Or,
You have a relatively small loan to your home's value and you want to use your equity to buy an additional property.

This could be a very good time to refinance, for vastly differing reasons. I will only discuss the first two here. If you are interested in using your equity to invest in foreign real estate, please read this post.

Falling Euro, copyright The Independent

The real estate market is standing still right now. If you hear the banks quoted in the press saying something like there is "a 20% reduction in new mortgages" you should know that they really mean an 80% reduction, but are afraid to exasperate the market that has been profoundly funked by the tent protests. In the meantime, the tents have rolled up, but there are still very few real estate transactions and the banks are still empty. Ironically, the socialist-despised market forces of supply and demand are making the banks compete for borrowers and are pushing down the costs of some mortgage types.

There is a huge however here: the change of rules by the Regulator of the Banks means that comparable mortgages to what you now have may no longer be available, especially if you are one of our long-time clients. For instance, if your current mortgage is 80% prime rate, you will only be able to have 33% of your loan prime after a refinance. However, we can currently get superior prices on non-indexed fixed rate loans. Right now these loans are being sold at under the long term average of the prime rate. If you are fairly sure that you won't be moving again, these loans are probably right for you. As always, it is critical that we manage the loan.

The second group can take advantage of a steadily weakening Euro to reduce their debt. As before, you can only take up to a third of your debt in a highly-volatile loan. However, the Euro might disintegrate. I have been talking about the Euro play for four years now. On Oct. 1, 2007 I wrote that it was a good idea to get Euro linked mortgages. Let's say that you took out a Euro indexed loan at the time that I wrote that piece. If you had a 1M NIS loan with interest only payments, you would currently owe 873K NIS. If you took the same loan indexed to the US$, you would now owe 940K NIS Compare this with the same loan indexed to inflation you would now owe 1.14M NIS.

Has the Euro completed its slip? I think not. I see no way that there will be any long term strength in the coin. Did you see where Italy was asking China to buy its bonds before being downgraded? It's so bad that countries like Brazil are lecturing Europeans about responsibility. See here: Brazil's Mantega: Europe Must Save Itself.

I think that there is a real chance that the Euro might slip 20% over the next year. This is a great time for us to get you a loan indexed to the Euro. Your debt will dissipate together with the Euro's value.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Do the banks and Super-Sol really differ?

2011-09-19T17:45:00.003+03:00

The Marker newspaper recently did a piece about the prices charged by the same chain in different locations. It was fascinating. You can even read it, translated into English, here:
Super-Sol charges more in Dimona than in Ramat Gan

Super-Sol deal, just like the bank

They wasted no effort on an easy story. They didn't compare your local Super-Sol Sheli to the mega Super-Sol Deal out in the hangar center or to some local discount chain. No, they were comparing similar stores in the same chain in different locations. The existence of these daughter chains is an example of price discrimination, a tell-tale sign of monopolistic power, where the supplier takes a different price from each customer.

It is easy to understand that there are some local conditions that can lead to variance in prices, like the high cost of rent in the city center or the high cost of bringing products to distant stores. (The burden of delivery to the retail site falls on the manufacturer or importer in Israel.) This in no way can explain why a store with expensive Ramat Gan rent has prices 30% higher than in Dimona. Only (lack of) supply and (no lack of) demand can explain this. Each store tries to maximize its profits according to the local market conditions and will vary their prices to make as much as possible from each customer.

The banks are no different. Each branch office tries to maximize its profits. You do yourself no favors by going to your branch. In fact, you are likely doing yourself a gross disservice. The bank is trying to increase its profit, not to serve.

However, as opposed to groceries, you don't buy a mortgage every week. If you live in Dimona, you're not going to go to Be'er Sheva for a package of crackers. Super-Sol knows this, so they charge you 30% more. The banks also want to do something similar, but we won't let them. We work with a few select branches spread across the country where we can get our clients the best deals. The chances are that this will not be your branch or the branch closest to your house.

If you haven't already read my post on the real rules of Israeli mortgages, please do.

Contact your Israeli Mortgage expert

You can't time the market, but you can buy verified not swampland

2011-09-08T16:03:00.004+03:00

You can't time the market. We never know when the markets hit the bottom or the top.
What we can do, however, is try to identify trends and when they reverse. There are trends in prices, exchange rates, inflation and salaries.

In Israel, real estate prices have been going up for some time. First the prices of exclusive properties went up, and then regular properties caught up with them. Right now, the market is more or less standing still. We're all waiting for some amazing government program to magically reduce the cost of real estate.

The only way that prices will substantially go down is to build a lot more. Eventually, this will happen. At some point we are even likely to see the building of too many units that will cause a big stall in real estate prices. But for now we expect to see real estate prices standing still.

In the long run, real estate prices tend to increase in line with inflation. At times the real estate prices increase more rapidly than the general inflation index, at times real estate prices increase after the general prices, but in the long run prices go up and real estate is not markedly different from consumer price index. (Housing costs is a major contributor to the CPI or מדד in Hebrew. The precise percentage of housing costs in the CPI changes from time to time. Currently, it is responsible for 20.7% of the total CPI.)

So let's say that you are sitting on a nice piece of Israeli real estate and want to take advantage of the increased value of your property-how can you do it? For most people, it is no longer the time to purchase a local investment property. For most people, this should be limited to under-priced markets.

For most people, I think that the time has come to invest in foreign properties. I know that this is counter-intuitive, and ostensibly appears to contradict my last post, but for some people this makes a lot of sense. It looks like your home value has reached a local peek. It looks like the shekel exchange rate is beyond a local bottom. It looks like in some areas abroad real estate prices have bottomed out.

Specifically, I think that Florida's Gulf Coast is a great opportunity for Israelis right now. The real estate prices in the Miami area have already started improving, thanks largely to Europeans snatching up under-priced properties. I think that the Gulf Coast offers better return on investment than the Atlantic Coast with prices still very low.

There is plenty of room for prices to increase, and in the meantime your current ROI is more than enough to cover the cost of a loan to buy.
This is an area that is very nice, and will always be a prime retirement and vacation location.
There is a large number of affordable housing, including condos which are easier for the absentee land lord to maintain.
The area is readily accessible from The Land, only about an hour's drive from Miami International.
There are lots of professional property management companies in the area.

We don't know what is going to happen with the exchange rate. The trend looks like the shekel weakening against the dollar. (If the Americans have an additional stimulus program or something this could change the short-term trend.) I hope that we can return to normalcy, with an exchange rate of 4 slowly depreciating over time. This means that taking out a shekel loan while getting dollar payments is a good deal in the long run.

Here's an example property for you, a condo in Estero, Florida. [For the sake of posterity, here is a screen shot of the listing that will inevitably be changed at some point.] This condo is selling for $40K. You can get $823 a month for this property. Let's use some conservative estimates and say that you lose a month every year between renters and have to pay the property mangers 14%. This still is leaving us with an annual return on investment of 18% a year. If we take everything that is left over, say $7500 a year, we can completely pay off a purchase loan (mortgaging your Israeli property) after only 7 years just from the rent.

This beauty sits on 2 dunam of prime real estate in Kalamazoo,
Michigan and can be yours for only $50K. Listing

Some caveats: this should only be done by people who in the worst case scenario can write off a bad investment. This should only be considered by people who owe a third or less on their own home. I don't believe in investments via newspaper or internet ads. Fly to Florida, look at properties yourself and decide what you want for yourself. Meet different property managers, speak with the locals. I think that there is no point in getting one property, but buying two or three in the same area makes a lot of sense.

There are other areas in the US where the prices are even cheaper than Florida. In Michigan you can get a house for $30K, but I don't think that it makes sense for Israelis. There might be additional markets that have a lot of the same advantages as those of Florida, it is only a great example of how you can get your house to work for you.

Play around with the map above. Check out sites like zillow to find target areas where you might be interested. If you want to get approved for a loan before you go to Florida, please contact Nahala Home Mortgages.

Coming soon: does the Euro have a bottom?

On Foreign Owned Real Estate in The Land

2011-08-23T18:19:00.001+03:00

This morning I was listening carefully to the first public deliberations of the Committee for Socioeconomic Changes under the leadership of Prof. Trachtenberg. I even made my own suggestions (in Hebrew) that you should feel free to give a thumbs up to. Should it disappear, you can also read it on my new blog.

A few people there were suggesting that something needs to be done about ghost properties owned by foreign residents who use them as vacation flats, mainly for Jewish festivals. Through some slight of hand, we have to find a way to discourage further purchases by foreigners. I couldn't disagree with this view more. The purchase of homes in the Land by foreigners is a wonderful boon for Israel.

The purchase of homes by foreigners does not come at the expense of the local buyer. They don't have the same typical buyer profile, they're not looking for the same flats. Building apartments in Israel is good for our economy. It is such an integral part of our society, that the Central Bureau of Statistics publishes a building materials index. All construction is good for us. We need to build and build and build until every Jew has a home in The Land.

Jerusalem of Gold, thanks to them rubbish is cleared.

In Jerusalem, for instance, a large proportion of the municipal taxes are collected from such apartments. A large portion of the city's population reports little to no income and enjoys up to a 90% discount on the municipal taxes. Foreign residents enjoy no such exemptions, they pay the full amount. Their apartments are also typically zoned to a higher rate. They pay for the entire city's trash to be cleared, but they produce trash only a month a year. They aren't sending their children to the city's education system, yet they pay the municipality's portion of the education bill. They use the city's parks and other amenities a month a year, yet they pay for them the entire year. All of the cities that manage to attract foreign residents (Jerusalem, Netanya, Ashdod) have managed to upgrade themselves nicely.
Foreign residents rent cars or use taxis during their time here. This is good for the car rental and taxi companies.
Foreign residents buy lots of goods while they are here. This is good for our merchants.
Israeli service providers continue the upkeep of these apartments year round.
These hypothetically empty flats are a great stepping stone for families to come up to The Land. I'm familiar with a typical building that attracts foreigners--12 years ago when this building was new it was only about 15% populated by permanent residents, the remainder owned by foreigners. Today this building is 75% occupied by permanent residents. Some of the residents have retired to Israel, some are being used by the children of the owners, while others are being used by people who are spending more and more of their time in The Land.

The purchase of Israeli real estate by our brethren in the exile is a phenomenon that we should welcome. I pray that all of our brethren should live in The Land full time. I would prefer if they would do this already today. However, until that day comes, we must make every effort to encourage our exiled brethren to come as he can.

I hope that the committee for socioeconomic changes disregards most of the socialist suggestions that it received, especially this one. We don't need to hinder the purchase of homes in The Land. Build more, that's all.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Now Netanyahu's reading my blog

2011-07-26T12:53:00.001+03:00

Bravo to Netanyahu. Massive kudos on reading my blog and implementing large portions of my plan.

I have been quiet since they started the boy-scout protests. The protesters are right about their complaints, but completely off in terms of their demands. Netanyahu just presented a plan (he's still speaking on the radio while I write this) that is based largely upon what I'm calling the Nahala Home Mortgage's Plan for Reducing Housing Costs. Just a few months ago I wrote this piece, quoted nearly word for word by Netanyahu. Amazingly he left out the part about taxation. He chose instead to talk about municipal tax exemptions, which I consider to be of less importance.

I also wrote this piece (three years ago!) outlining the problems of building too few housing units and why they would cause increasing housing prices. Netanyahu also addressed many of the issues written there.

The socialists won't like Netanyahu's plan. It doesn't include new government regulation. Instead he talks about liberalization of policies. I can hear on the radio right now the idiots in their tents yelling "Bibi go home". The students aren't interested in new dorms twenty minutes from the city, they want to live in high society and pay nothing for it. Students renting apartments in the middle of the large cities has increased the demand for rental properties pushing up the prices and exasperating prices in general. Netanyahu has offered a great way to decrease this demand and lower prices.

[As an aside, I think that instead of moving only the dorms to Lod, they should also move parts of the university or open an additional university there.Student life in dorms can be a lot of fun. Around the dorms an economy of services for the students develops: restaurants, leisure, shopping. In the end of the day it is good for everyone. Netanyahu thinks that some will even chose to remain in the cities where they learn. It happened to me.]

I have been consistently saying that the way to solve our problems is to remove regulations. Allow more building. Build outside of the big cities. Make public transportation cheap. The train stinks, it needs to be twice as good at half the price, eliminate parking costs at train stations. Allow for massive building in places like Kiryat Gat, next to the Tran-Israel Highway and with thousands of dunams of empty land. If they are outside of the municipal boundaries, increase the municipal boundaries and let them build whatever they want.

What I heard from Netanyahu and Steinietz now is pretty good. [I am consistently unimpressed by Attias, I think that he is out of his league.] We're all for cheaper real estate prices, and this plan is far better than what I expected. Netanyahu didn't cave in to socialists demands. The market will solve the problem is we only allow it to.

We don't want Greece here, we want freedom. Government programs are evil, solve the problems with as little government intervention as possible. Marketing land at no cost is not government intervention, it is government getting out of the way, and I'm all for it.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Portugal downgrade raises fresh concerns

2011-07-07T14:28:00.000+03:00

First we slipped on the Greece.

Then we showed Portugal the door.

Now Ireland is worrying at about her emerald future.

When a truly big economy like Spain falters next, the Euro is done for.

Portugal downgrade raises fresh concerns - The Irish Times - Thu, Jul 07, 2011

As I have been writing for some time, I continue to see strength in the Shekel, especially against the Euro.

Don't slip on the Greece

2011-06-16T13:32:00.004+03:00

As you may have heard, Greece is a greasy mess right now.

Greece is on the brink of economic disaster, this after bailouts.
With pictures like these, who in the world would trust a Greek bond?

I don't know if these people understand how self-defeating their violence is. A hallmark of L'Internationale Socialiste is street violence. The second that the industrious peoples of the world stop giving in to the parasites' demands for protection in the form of government "social" programs, the parasites start burning buildings and throwing stones. The Greek socialist parasites have been living on the dole for a long time. Most money flowing into their country comes from tourism from foreign industrious people. Would you visit Greece with those pictures?

I'm not quite sure how there could be a sovereign default for a country in the Eurozone. I've seen many opinions about it. The choice would seem to be chucking them out of the the Eurozone, or completely bailing them out. Right now, it looks like neither choice is very good. If Greece is expelled from the Euro, it might cause the disintegration of the coin. Maybe Greece will revert to Turkish rule in the end. In either scenario, it looks like the chance of the Euro becoming the international currency are slim. Part of the Euro's strength is this assumption.

Traditionally, the international coin of reference is that of the superpower. America's best days are behind her, that's for sure. The Euro was supposed to take the place of the US$ as the international currency of reference. Here's an example of some experts who think this is the case. It is hard to imagine this happening today. It was so exciting, I remember it well. It was so clear that the Euro was going to rule the world that the € symbol was even added to standard computer keyboards. 元 is the symbol for the Chinese Yuan, but I can't find it on my keyboard (also used is the Yen symbol). This looks like suspiciously similar to something used in economic theory to denote inflation. For instance:

The symbol for the Chinese currency would be something used to denote a type of inflation. Coincidence or the hand of the Almighty, in His typically poetically just tradition?

Back in the days when the sun never set on the British Empire, the Pound Sterling was the international coin. Since the sun now infrequently rises on the same empire, a UK₤ is worth about a fourth of what it was a century ago compared to the US$. Here is a fun history for my father and other history buffs. So according to the experts, something similar is supposed to be happening with the US$ now.

Four years ago, the $-€ rate was 1.43. If the € were displacing the $, we would expect to see a rate of 1.75 four years later, yet we see the rate is 1.41 as I write these lines. (The highest the exchange rate ever got was 1.57 in July 2008).

The old king of international trade is dying and needs to be replaced. The only problem is that the heir apparent is extremely sick and not a viable alternative. The next generation (China) is unpalatable, so in the meantime we're holding on to the old man and praying that a better alternative arrives. The strength of our own ₪ reflects this in many ways. There is no effective default currency right now.

What does all of this have to do with us? Everything. World wide stock markets took a big hit yesterday. Lots of banks might have to write off assets in Greek bonds or wait seven years for payments, presuming they could ever initiate austerity measures in that country. Money will be taken out of stock markets and will need a place to go, and real estate is a more attractive alternative right now than reserve currency.

Look for real estate prices to go up. Look for the Euro to go down. Unfortunately we can no longer get pure Euro loans for most of our clients thanks to unneeded intervention by the bank regulator. We can still work our magic and get a lot of things done to help you prepare for the impeding eurplosion.

Inflation: the consumer price index was up 0.5% for May, the building index was 0.8%.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

New Greek Aid Program Could Exceed EUR100 Billion - Report

2011-06-05T09:13:00.001+03:00

New Greek Aid Program Could Exceed EUR100 Billion - Report

This reinforces what I said about printing money in Europe.

The 100 B Euros will not come from reducing government spending in Beligium, it will be printed.

And yes, this does have inflationary effects on Israel.

BTW, seemingly unrelated, the NIS has strengthened considerably over the dollar. This is probably more about the weakness of the US economy than the strength of ours. There is no FOREX trading on Sundays, so the rate will remain 3.389. The Euro is at 4.96, but will likely fall tomorrow when trade resumes.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Real Estate Prices

2011-06-02T20:56:00.002+03:00

The latest real estate news has us wondering what might be the fate of the Israeli market. In the US, there was no doubt a "housing bubble"—artificially high housing prices based more upon speculation than on market forces.

Average cost
of dwelling, 1000's NIS

Last year, housing prices in the

fell 5%, wiping out the gains of the previous two years in real estate prices, and renewing fears that the "crisis" there is not over.

To remind you, for some time I have been asserting that there is no real estate bubble in Israel (you can see my previous pearls of real estate and mortgage wisdom here), and that we would be far better off concentrating efforts on the liberalization of building regulations rather than increasing regulations on mortgages.

The valuations of Israeli real estate have risen drastically over the past few years. Take a look at the table on the right, showing the average prices of Israeli dwellings over the past decade. All of the statistics are from the Central Bureau of Statistics. Here is an example of one. [Back when I was doing the research for my master's degree in economics I spent many a day at the CBS, and I still don't feel quite comfortable if I don't have a copy of the Almanac in my hand. Now available: Statistical Abstract of Israel 2010-No.61]

The question that we need to address as economists isn't whether the prices have risen or not, but why have they risen. Is this the result of supply and demand or of speculation? Have the prices risen drastically more than inflation for the same period? The answer to this question will affect how we plan mortgages for our clients.

The chart on the right shows what inflation looked like for the past twenty four years. The magenta line shows the relative prices of homes for the past twenty-four years, up to date. The blue line shows the consumer price index without the housing element. (You can find these numbers here.)

Inflation since I've been in Israel

Governor Fischer and his henchmen at the bank regulator directorate are under the impression that prices have risen because of the availability and affordability of credit. This was one of the causes of the great international real estate bubbles of the 00's. They figure that there was really cheap credit and the prices of real estate rose, purchased in large part with affordable credit. Therefore cheap credit and rising prices must mean the same thing here. I do not agree.

To the right you can see a graph comparing the increase in the prices of housing with general inflation, the chart doesn't really show bubble. It shows a little more than long term inflation, influenced by lack of housing more than cheap credit.

For our clients we need to consider many things. In the short term, we have to deal with all of the draconian new restrictions on mortgages. In the longer term, we need to consider plausible outcomes of today's situation. Governor Fischer is trying to cool down the market via disturbing the demand side by making the taking of a mortgage more difficult. What does this mean to real estate prices 5 or 10 years from now? We think little.

We don't believe that this will affect much in the long term. If anything, the increased regulation will cause greater market distortion, with a larger portion of dwellings moving into the hands of the affluent who can meet the tougher new mortgage criteria. As it becomes more difficult to purchase a home, the demand for rental flats will increase, pushing up rents and making rental properties more attractive.

As you can see from the chart above, there is no guarantee that real estate prices will always rise. As the past few years have shown inordinate increases, it shouldn't surprise anyone should they go slightly down at some point. Unemployment is at a historic low in

Israel

and expected to continue to fall. The economy is rising at a rate of over 5%. More people have more money, and demand for housing will continue to be strong.

Our outlook for the coming years is price stability in real estate (not withstanding local conditions that might push up or down the prices in a specific area). As demand continues to be strong, we don't expect the new mortgage regulations to have a lasting impact, they will probably be amended before long. Until now the banks have always found ways around the bank regulation in order to meet market demand for mortgages. We are already developing a few of our own, but they won't work for everyone.

While mortgage rates are continuing to rise, they are still below their historic averages. If the slight increases in rates concern you, you were more than likely planning on taking out too much of a mortgage anyway.

Is the Governor studying the Daf Yomi?

2011-05-25T16:34:00.007+03:00

Just last week I started translating this blog into Hebrew as a service for my large number of Hebrew speaking clients. I was sure that I would be translating my popular English posts into Hebrew. Here I am, only three posts down and already I find myself translating the Hebrew one into English. If you are more comfortable reading in Hebrew, קרא מאמר זה כאן.

Like many practitioners of Torah and Avoda, I start my days with my 05:00 constitutional daily page lesson. Today we learned something pointedly relevant to Israel's mortgage and real estate market.

Babylonian Talmud, Menahot Tractate, page 77, side A:

אמר שמואל, אין מוסיפין על המידות יותר משתות, ולא על המטבע יותר משתות והמשתכר לא ישתכר יותר משתות. מאי טעמה? אילמלא משום אפקועי תרעה, אי הכי שתות נמי לא! .... דיאנה הוא דלא לימטייה--רוחא לא בעי, זבן וזבין תגרא איקרי

My translation of this text (any errors are mine):

Shmuel said: we don't add more than a shtut (one fifth of the original amount) to measurements, nor do we add more than a shtut to coins, nor do we pay employees more than a shtut more than the going wage. What is the reason for this instruction? Say that the price levels will rise in an amount greater than the corresponding amount of goods. If this happens, we would be apprehensive because the prices will rise more rapidly the amount of goods.... Should we be concerned only because a merchant might loose a little? And does the merchant not need to earn something? Does he buy and sell goods only for the honor of being called a merchant?

A little background: coins weren't always standard. If you had a little bit of gold or silver around, you might add it to a coin rather than lose it. Criminals used to shave a bit off of coins, but it usually wouldn't matter because coins were weighed at the market. Therefore we also have a strict mitzva of maintaining accurate scales. So if you arrive at the market with a slightly heavier coin, the merchant would add another potato or so to your sack. How much are you permitted to add to a coin? Up to one fifth of the coin's accepted value.

What was of such concern to the sages? They were concerned about inflation. Let's say that oranges come in a netted bag holding 1.5 kg. Such a bag would fetch one coin at the market. If you came with a coin that was slightly heavier, you might walk away with an additional fruit or two. As frequent travelers know, prices are typically tied to the local coin. While travelling in the USA last summer, I bought a cup of coffee for $2. One week later I bought the same cup of coffee in London for £2. The prices regress to the local standard. The sages think that if we put more gold into the coins, then all we do is cause the price of goods to rise, and that this will distort the market.

The Governor of the Bank of Israel, Stanley Fischer, thinks that he can best market forces. The Talmud is teaching us that you can't beat the market, therefore we should be careful of even attempting it. Supply and demand trump regulation every time. Real Estate prices are too high. If they are to be lowered, it needs to be via the price mechanism of supply and demand. In one of my previous posts I detailed how we can reduce the prices of Israeli real estate without further regulation.

This AU$1 M coin is now worth
AU$4.6 M, according to its weight.

Real estate has become very expensive for a number of reasons. One of them is the inordinate amount of money that has been printed in the world. [It hasn't really been printed, just written down as if it existed.] Remember all of those bailouts in the USA? I've seen conflicting figures, but it is in the trillions. Similar programs abound in Europe. And lets not forget about the bailouts of Greece and Ireland, and provisions for Portugal and Spain. The total amount of money in the world has increased by 19% in the years 2008-2010, according to figures in the OECD database. You can check them here. During this same period, the domestic product of the same nations grew only 0.19% and they experienced combined inflation of only 1.9% (source of the statistic). In striking elegance, one one-hundredth of the increase in money can be accounted for by an increase in the amount of goods available, whilst inflation has so far only accounted for 10% of the increased money.

Another striking elegance is that our sages warned us about not increasing more than a fifth, and the collective world has amazingly not increased the amount of money by more than what the sage Shmuel prescribed.

The shekel has increased in value over the past few years in relation to all foreign coins. However, we cannot ignore the increased amount of money in the world and the fact that something needs to be done with it now that it has been printed. The market doesn't wait, and already it moves money into places where the real value can be maintained over time. In Israel, this has been in real estate. In other places in the world a severely depressed real estate market forced investors into gold. The increased prices of real estate in Israel are attributable in part to the greater amount of money in the world. We can't do anything about that.

Finally, the Talmud teaches us that the merchant doesn't work so hard for the honor of being called a merchant, he's trying to support his family. The same thing is true of building contractors. They aren't in it for the glory of being called contractors, but to support their families. There is no place to blame the developers for the rising costs of housing, but all of those governments who printed money.

I don't believe that there is a real estate bubble in Israel. This doesn't mean that the prices aren't too high, however, I don't see them going far beyond the shtut allowed by Shmuel.

I suggest that the Bank of Israel rescind all of the latest restrictions on the consumer via increased mortgage regulation.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

The Gloriously Ignorant

2011-05-19T15:13:00.001+03:00

I'm now trying to publish most of my posts in Hebrew also. If it is easier for you to read in Hebrew, please go to my blog in Hebrew, משכנתא נבונה and subscribe to it.

It's official, our "competitors" and the bank clerks know nothing. You can read all about it here in Globes. I looked for this article on their English site, but I haven't found it. Maybe it will be translated in the next few days.

If you have trouble understanding the Hebrew, here is a summary: most of the clerks in the mortgage banks know next to nothing about mortgages. In addition most self-styled brokers and consultants have no idea what they are talking about.

Unlike them, Oded and I put our wealth of experience to work for our clients. We say this many times, and I think that for most people it goes in one ear and out the other, but your rate is irrelevant. The truly important part of our job is making sure that the banks don't take you to the cleaners for the next 30 years.

What's cheap is expensive. If you are using some free service or forum to advise you about your 900,000 NIS you're getting what you paid for. If you rely upon an "interest auction" to decide upon your mortgage, the bank will laugh all the way to the bank. If you use a broker, you are a fool, and we all know what happens to a fool's money.

In addition to Nahala Home Mortgages, there are another five or six high-quality mortgage advisory firms in Israel. Like Nahala, all of them are small and run by former managers of Israeli mortgage banks. We make no pretense whatsoever about being the cheapest service around, we're not. We are the most professional, and we will save you the most amount of money in the long run

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

My plan for normalizing real estate prices

2011-05-15T14:59:00.000+03:00

Last week was a short week, so the Governor of the Bank of Israel didn't have the time to introduce any additioanl draconian measures that will supposedly lower real estate prices.

If this is your first time reading my blog, take a look at my past posts. I'm not a huge fan of regulation. Like the banks and most citizens, I, too, have looked on with apprehension as real estate prices have continued to rise. Yet I don't see increased regulation alleviating the problem in any way.

Government regulation is not the solution to the problem, it is the cause of the problem. The only government actions that can be of help is in the reduction or elimination of previous regulation.

Can we fix the minor ills of Israel by adopting heavy-handed government intervention? Governor Fisher is about to limit mortgages to 50% of the value of a home. What's next, will he then force appraisers to value homes at only 80% of the current market rate? Maybe we can dispel with the liberalization of foreign currency from 17 years ago and reintroduce exchange rates set daily by the governor? [Stan the man has been unsuccessfully trying to do this for two and a half years by buying huge amounts of foreign currency.]

Pollution, the mother of all externalities

In general economists believe that free markets do the best job of determining prices of goods and services, wages and real property. Occasionally the government needs to nudge the market along when there is what we call an externality. For a one-footed explanation, envision a really high tax on cigarettes to offset the high cost to society of smoking and discourage smoking itself at the same time.

Is there an externality that is causing Israeli real estate prices to rise? Not in the classic case, such as a factory spewing smoke into the air. The demand in Israeli real estate remains high. Only a small portion of this comes from foreigners. As we see the in gathering of the exiles as one of our national goals, this can hardly be considered an externality.

If there is no externality (if you know one, please let me know), then there is no justification for government intervention in the Israeli financial or real estate markets. So how do we fix it? Here are a few ideas:

Eliminate the ridiculous income tax exemption on rental properties. Right now, rental properties up to 9999 NIS a month do not have to report rents as income. Just do away with this altogether. We need an overhaul of our entire tax code which lets too many people get away with undeclared income, but as a super easy first step, just do away with this exemption.
Eliminate most building regulations. The building regulators just need to check that plans meet zoning regulations and no more. If someone walks into a regional planning commission with plans to build on property that he owns, he should walk out with a permit in his hands.
Liberate local authorities. The locals understand better the real and hidden demand. Local authorities need to be able to authorize more building and higher "building percentages" in their own localities. What's more, as every local authority loves empire building, the second we open the flood gates, every municipality will rush to plan new neighborhoods.
Stop regulating mortgages. There is very healthy competition between the banks on the mortgage taker. All that regulation is doing is hurting the consumer.

All of these steps are easy, immediately implementable, cost effective, require no new bureaucratic mechanism to enforce, and will contribute much more to the stabilization of real estate prices. As we have seen throughout the past year, increasing regulation will backfire in the long run.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

All bets are off for now

2011-05-03T11:44:00.002+03:00

Stan the man is at it again.

What's Guv Stan fishing for?

He keeps on trying to break the real estate market. I just heard him speak on the radio. Having failed in his last four efforts, he keeps taking more and more drastic steps in a futile effort to dictate his will on a market fueled by supply and demand.

There is a limit to how much he can change the rules. He wants to limit mortgages to 50% of the purchase price. He wants to limit variable rate mortgages to no more than a third of the loan amount. Right now, the banks are literally at a loss for what to do. Go into the bank right now, you will hear more mumbling than anything else. Two major banks just suspended the best programs.

Do you think that the banks are going to take the Governor's wishes into account to get you cheaper mortgages? To the contrary, they are taking advantage of his interference to push loan takers into the most profitable long run products. If you will be forced to take two thirds of your loan in long term mortgages, you can bet that the banks are going to be pushing you into inflation indexed loan.

Golden rule: any and all government interference in the market will backfire.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

What happens when you don't take my advice

2011-04-26T08:48:00.001+03:00

Six months ago, I wrote an article about a recent "client" who decided to forgo our advice because he was afraid of the capitalization fee. You can read the piece right here: Who's afraid of the capitalization fee?

I heard from this guy over the last festival, so I quickly ran down his numbers again.

Current debt: 2.16 M NIS (inflation has caused the debt to go up slightly, despite having made six more payments)

Of which is indexed to inflation: 1.47 M

As of this writing, the current exchange rate is 1 NIS = $0.294. Having take our advice six-seven months ago, the current debt would now be 1.97 M instead of the current debt. That's right, an amazing savings of around 175,000 for six months. If you didn't take the time to reread what I wrote in the original post, they were concerned about a 94,000 capitalization fee. If you are interested in details, please contact Nahala Home Mortgages.

Their payments would have been a few thousand shekels a month lower. I didn't take it into account.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

If the bank is paying 2.6%, how much will you pay?

2011-04-12T14:32:00.001+03:00

This is not a rhetorical question. Not too long ago the Supervisor of the Banks increased the capital adequacy requirements (הלימות הון) for loan over 70% to 1. This means that for every shekel they lend, they need to have 1 shekel in assets. For investment properties, this starts at 60%.

This is, of course, a ridiculously high number. Any fair policy would allow the banks to use their judgement based upon the credit profile of the borrower. The policy doesn't differentiate between someone whose mortgage payment is 40% of their free income and someone for whom it is only 10%.

In Globes they report on yesterday's offering of Mizrahi Tefahot bonds. Two things are really important to point out here:

The bank is paying 2.6% + indexing to the CPI for capital and 5.5% for non-indexed bonds. [If you ask me, the indexed bonds are the better deal right now.] That's what it costs the bank to buy capital to lend.

Greek Bond. Copyright its owner.

This offering was over subscribed by four times. This means that a lot of institutions (the predominant bond holders) have nothing better to investment. They have idle money (no better investments), and are happier to buy Mizrahi-Tefahot bonds than just about anything. (To be fair, even Greek government bonds are over subscribed and are almost at a junk rating.)

Let's try to look at the perspective of this. Last year, the banks showed huge profits, despite interest rates being at their historic lows throughout the whole year. We have lots of clients who got loans for under 2% for ten year ranges, etc. The banks paid around 1% for this money. Taking into account the crazy new regulation, the effective cost to the bank is going to be around 1.4%.

So when the bank was paying around 1%, we were get our clients deals for around 1.75%, and the average guy on the street was getting 2ish. Now we know the exact pre-transaction cost to the bank: 2.6% on indexed loans and 5.5% on non-indexed loans. A fair expectation of average costs would give us 4% for indexed loans and 6.9% on non-indexed loans (a better deal for most).

The day of the cheap mortgage is over for now. As soon as the Bank of Israel raises rates again, expect to see further increases in rates for mortgages. In the end of the day this will probably be better for the homeowner.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Israel: A Better Place in our 64th year

2011-04-06T16:43:00.004+03:00

2/1/64
Happy New Year.
Yesterday marked the first day of the 64th year of our Redemption.
How does Israel look entering its 64th year? Never better. Our economy continues to be robust.

We're doing so well, we can't figure out how to weaken our currency. There are more ridiculous market interventions on the way, and still the shekel continues to gain strength. As I write, 1 mighty shekel will buy you $0.289, up another cent from two days ago.

Why is the shekel still strong? If you aren't a regular reader, click on the energy tag on the right, I've explained a lot of it there. Israel is far less dependent upon foreign energy then we used to be. Our current need for foreign currency to purchase oil is far less than it was just a few years ago. In the future it will be even less.

Better place, between Bilu Center and my house

Today I stopped by the world's first electric filling station. It's just down the street from my home in beautiful Mazkeret Batya, across from my favorite supermarket. There were three guys sitting around without a lot to do, because there are only a few experimental cars out there right now. The building of the infrastructure continues. Currently there are 40 such stations being built, the first photographed here. This is being financed by foreigners. It may look small, but 40 filling stations cost a fortune to build. Instead of spending money on somebody else's oil. Now they're paying for us to fuel ourselves. I wonder if they plan on putting solar collectors on the roof.

The only damper on all of our good news seems to be the cost of real estate throughout the country. Unless you care to live in Tiveria or Yeruham, you're out of luck. I went to visit some of the projects in the fields in Mazkeret Batya. They're asking for 1.5M for an apartment that won't be build for at least 3 years, and hasn't even gotten approval yet. BTW, that is for a 4 room apartment in the middle of a 10 apartment building. It's the cheapest, there are also 2M apartments available. I can't even talk about the lunacy of duplex pricing.

If you are trying to buy a home, you are not in an admirable position right now. It is hard, very hard. However, if you have a house, there are lots of ways you can take advantage of that right now through increasing your mortgage. This will differ from person to person depending upon financial profile, but most people who bought houses a few years ago now have considerably more capital that they can tap.

In my last post I alluded to purchasing a home in the US. That is a great idea for the untimid, but not right for everybody. But what about some more modest investments. If you don't listen to the radio, there are lots of great initiatives out there for making your own energy. Just click any of the links on this page. Most of these companies promise a ROI through a signed contract of 13-15%. If you'll be paying 5% on a mortgage, and getting 13% back, what's the problem? Like American real estate, putting solar panel on your roof is not right for everyone, but there are lots of ways out there that you can take advantage of the crazy real estate market to put actual cash into your pocket, and not only be the owner of a really expensive apartment.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

increasing rates, the shekel and a home on the range

2011-04-03T12:10:00.001+03:00

As I write these lines, the current exchange rate with the US$ is 1 NIS = 0.288 US$.

The Bank of Israel raised rates last week by 0.5%. The rate as of Friday was 3%, the Prime is now 4.5%

Stan the Man Fisher has been trying to raise rates for some time now, and has been prevented from doing so because of problems with the exchange rate. The Bank of Israel has failed in this. Even though they "bought" a record amount of dollars on Thursday, the rate continues to plummet.

If you read the interest rate decision, you will see that the bank felt that since the exchange rate fell only 1.9% since they raised the rate by 0.25% the previous month, they shouldn't expect any big changes. Since the announcement the rate has declined by 3.5%. As I expect the BoI to continue to raise the rates, I can't see this figure going up anytime soon. Will it go down a lot more? Probably, I can't be sure.

This beautiful house in Florida can be yours for only $55K
I'm not making this up. See the actual listing here.
You could probably get a mortgage for about half the rent.

We've had a few clients taking out loans to buy property in the US lately. The coupling of the advantageous exchange with low real estate prices in the states makes it very attractive. I'm not an expert on US investments, but right now I would recommend buying in the south and staying away from the deals in Michigan.

This can only be done if you have a relatively small loan on your home and padding in your monthly accounts. However, I can't really see better circumstances for diversifying your portfolio than these. The dollar and US real estate are both very low. Everything is cyclic. They will come back at some time. If you let us be really creative with your mortgage, we can arrange a double whammy in many situations (but not all). Again, this is not for anyone and should not be considered on a tight budget, but it is a great opportunity.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

updates

2011-03-17T11:37:00.001+02:00

I haven't had time to write for a month. A lot has been happening both in the world and with Israeli mortgages.

There is a reported "slowdown" in the housing market. Those of us who have been working in this market for many years know that this is seasonal. Every the end of the winter is a cooling off period after a very active autumn and fall. From our experience, things will pick up again after Pesah. Luckily, we've had our hands full, but the banks are empty.

That said, we are beginning to feel the effects of the draconian measures recently put in place by the regulator of the banks, limiting loan amounts and artificially raising the cost of mortgages.

The banks are raising mortgage rates more rapidly than the Bank of Israel. The BoI rate has gone up by only 0.25%, the bank rates have gone up by 0.5-1.5%, depending upon programs.

Inflation continues to be bad. In my previous post I wrote If you hear numbers like 0.2% you should be concerned. The figure for Jan. was 0.2%. February figures released only a few days ago were 0.3%. None of us know what is going to happen since the Japan and Libyan crises started. One month ago the price of oil was $78 a barrel, today it is $99. This might cause big inflation, especially in the building materials index.

The exchange rate right now is pretty much what it was a month ago.

I expect that the BoI interest rate will increase by an additional quarter of a percent after Purim.

For about two years Oded and I have been warning against cheap loans. Those of our clients who took our advice are already enjoying the fruits of our work. A cheap loan is a bad loan. We make loans for our clients that protect them.

Now more than ever, you should always consult your qualified Israeli Mortgage Advisor.

Inflation and the Dollar

2011-02-15T16:24:00.001+02:00

The dollar goes up, the dollar goes down, the dollar is a silly clown. Two months ago I wrote my famous Sledgehammer Manifesto. Stan the man is at it again. This time he is trying to break the foreign exchange rate market.

As of this writing, the official exchange rate is 1 NIS=$0.274

For the past two years, the Bank of Israel has been purchasing dollars, estimated at $40B, to weaken the shekel. Having had little effect, in breaking the market with his hammer, he is now breaking out the 8 kg sledge version.

With our export based economy, the exchange rate is critical. The strengthening of the shekel means that we get less for our exports, and it is harder for tourists to come here. In the old days, the Bank of Israel decided what the exchange rate would be, arbitrarily adjusting it to optimize the needs of the hour. Now it can only influence the rate through external measures such as "buying" and "selling" foreign currency reserves and adjusting the interest rate.

The Shekel, the predecessor to today's mighty
NIS. Will it be making a comeback soon?

The BoI has been stuck in a situation where its main tool, adjusting the interest rate, has been neutralized by the strong dollar. In an effort to alleviate this situation, the BoI has come up with a great new solution: regulation! [If this happens to be your first time reading my blog (subscribe on the right), I am not a fan of regulation, tax, intervention or government interference in any other guise.] The new solution is to try to limit the amount of foreign "speculative" investors, by taxing them and forcing them to report on their investments in shekels.

I remember the bad old days, back when we were still in the beginning of our Redemption. Our precarious economy needed every bit of foreign currency it could get its hands on. We used to get Israel Bonds in ridiculously small amounts. Today, the bonds folks are not interested in any denominations under $5000, (there is a nostalgic Mazel Tov series available for $100, but have such a ridiculously low interest rate that there is no point in buying them).

The moves will have only a marginal affect. The week they were announced, the shekel weakened by a few agorot. The Egyptian crisis had a bigger influence. Now that the Egyptians seem to be stabilizing, so the shekel is again strengthening, and we will soon be back to the rates before the last intervention.

January inflation figures will be released in a few hours. Traditionally, January is the month with the lowest inflation, usually flat or even slightly negative. If you hear numbers like 0.2% you should be concerned. Inflation should cause the exchange rate to rise, but it has not lately, as the relative inflation (our prices compared to theirs) remains fairly stable.

For many of our clients, we believe that mixes including a dose of foreign currency makes sense. It doesn't make sense for everyone.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Attias and the Investment Property

2011-02-15T12:14:00.000+02:00

I have so much to say, and so little time to say it. I apologize for not being able to post for the past month. Clients come first with us always.

CEO of Mizrahi-Tefahot Unis

Two days ago Oded and I were invited to participate at Tefahot's annual real estate conference. On the stage were the CEO of the bank, the Minister of Housing, and the Roiter, the head of the mortgage division.

I was really happy to hear that Unis agrees with most of my views. If you want his take on Israel's real estate market, opportunities and dangers, read my blog.

More disappointing was to finally hear Minister Attias. Outside of not speaking proper Hebrew, he doesn't understand economics very well. His ideas are sophomoric and don't take into account market realities. He has a big problem with investment properties. The popular myth right now is that real estate prices appreciated because investors are taking advantage of low interest rates to purchase properties that would otherwise have been sold at lower prices to "young couples".

The Min-uh-star who doesn't get
basic economic.

Out of touch Attias needs to separate himself from his party's socialist demagoguery. Most of our investor clients are taking out half or less of the property value in mortgages. They aren't pushing up property values, but taking advantage of dumb government regulations that are pushing up rent prices. The return on investment in rents is increasing, and will only increase more as the government introduces new regulations or programs to make people buy properties where they don't want to live.

If the government really thought that there is a problem with investment properties, there is a really easy, quick solution. Right now you don't have to report income from rentals under 10000 NIS a month. If they just reduce this amount to 2000 a month, they will change the profitability of investment properties right away. They can also increase the tax rate on rented properties from 10% to 22%, which will greatly reduce the number of people interested in purchasing properties for the rent.

However, the government doesn't like clean, efficient fixes to perceived problems. [Has anyone proved that there is an actual problem?] They prefer big bureaucratic solutions that only complicate matters and create huge holes for racketeers and connivers while milking the honest guy pay. For us, it ensures that property prices will continue to rise.

The best way for the government to lower the prices of real estate is to get out of the market.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.