Buying a home becoming further out of reach for Israelis

The Bank of Israel is due to announce its latest interest rate decision this afternoon. The market estimates a 60% probability of a cut of 0.25% in the central bank’s rate to 3.75%. Although some monetary easing will give a boost to economic activity and make credit a little cheaper, as far as housing is concerned it’s as yet too early to celebrate. That conclusion arises from analysis by Phoenix Financial chief economist Matan Shitrit, which presents an index that measures the attainability of housing in Israel, that is the ability of an average household to buy an average home. The index is based on the price of an average home, mortgage interest rates, the loan period, and household income.

The bottom line is that the ability of Israeli households to buy a home is at a low. Shitrit’s index ranges around 80 points. “An average household earns only 80% of the income required to buy an average home under current financing conditions. In other words, in order to afford such a purchase, the average household needs an income 20-25% higher than it has at present.”

Monthly repayment will fall

Phoenix Financial examined the monthly repayment on an average mortgage loan in Israel of NIS 1.1 million for 23 years. In its first scenario, based on the current weighted average mortgage interest rate (4.6% in April), the average monthly repayment is NIS 6,400. In its second scenario, the same loan is examined with an average interest rate of 4.2%, derived from the assumption that the Bank of Israel’s rate will fall to 3.5% within a year, as currently priced in by the capital market. In that event, the average monthly repayment reduces moderately, to NIS 6,200.

Shitirit: “Many people tend to think that the interest rate is the main factor that determines whether a household is capable of buying a home. The interest rate environment does indeed have an impact on the level of the monthly repayment and the cost of finance, but in practice the ability to buy a home is the product of a much broader equation that takes into account home prices, income levels, financing terms, and the loan period.”

In order to understand the factors that affect the attainability of a home, Shitrit examined a theoretical mortgage on an average home under the assumption of a fixed loan to value ratio of 60%, which is the average in Israel, on the basis of the current average interest rate and loan period in the market, and calculated the monthly repayment.

“A double blow”

The well-known rule of thumb is that a household should not devote more than about 30% of its income to paying off a mortgage. Since 2022, however, when interest rates started to climb while home prices rose, monthly mortgage repayments have risen faster than average wages. As a result, the average repayment as a proportion of average household income climbed to nearly 37%. “Even if interest rates fall to some extent in the future, the gap that has opened up between home prices and the rate of increase of incomes will continue to be a main barrier to the ability to buy a home,” Shitrit says. “Unless there is substantial change on the supply side or in incomes, attainability will remain limited, even in a lower interest rate environment.

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“In the past few years, Israeli households have had to cope with a double blow. Home prices rose significantly faster than incomes, while the interest rate environment changed sharply after a long period of virtually zero rates. The combination of the two led to a sharp rise in mortgage repayments and to erosion in the attainability of housing.”

Looking ahead, it is not certain that a lower interest rate environment will be sufficient to restore attainability of housing to affordable levels. “Some correction in home prices will also be needed,” says Shitrit, “or else a prolonged period of wage rises that are more rapid than the rise in housing prices, in order to improve materially the ability of households to buy a home once more.”

Published by Globes, Israel business news – en.globes.co.il – on May 25, 2026.

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