Back to solving the world's problems one Israeli mortgage at a time

I haven't had the opportunity to post anything here for over a month.  I was out of the Land for a few weeks, but I'm back to work now.

Some highlights of the things that you may have missed in the past monthish:

1. Our core interest rate was raised by the Bank of Israel 0.25%, to 1.75%. The prime rate is now 3.25%
2. Inflation for June was 0.3%. For July it was 0.5%.
3. The last time I wrote here 1 New Israeli Shekel would get you 0.258 US$. Today you could get 0.272 US$.
4. Still more natural energy resources have been found in Israel. There is speculation about joining OPEC, but ever since Gabon suspended her membership, I hear the meetings aren't nearly as much fun.

Hooray for the clients who were lucky enough to have Nahala Home Mortgages as their mortgage advisor! Their debt shrunk by 5% while most people's has grown by 1%. Shlomo Homeowner (our client) who just took out a 1M NIS loan three months ago, now owes about 60,000 NIS less then Dodo Homeowner (not our client) who took out the same amount with someone who got him the best rate.

[BTW, we are not cheap, we are good. Our understanding of finance and Israeli mortgages is unmatched and our clients save hundreds of thousands of shekels. We are not a courier service and we won't take a client for whom we can't provide real value. If you are looking to save a few shekels a month, we are not the right company for you. If you want to save tons of money, give us a call.]

Now for some of the juicy news that you have probably heard, but haven't yet registered fully:

1. Russia, the world's fourth largest wheat and largest barley producer is burning and will export no grains this year.
2. Ukraine, the world's eleventh largest wheat and fifth largest barley producer will also not be able to export any grain this year.
3. Pakistan, the world's ninth largest wheat and second largest buffalo milk producer is a complete mess because of massive floods and probably will even need to import grain this year (the grain growing region is the part that has been flooded).
4. China now has the world's second largest economy. 
5. There is a good chance that the legislature of the US will become controlled by the opposition Republican party.

Pakistani buffalo. Their meat is kosher, but I haven't yet found

a butcher in Karachi. If you know of any, please let me know.

The United States claims that they will be able to make up the difference in the world's wheat supplies, but who will make up the shortfall in buffaloes' milk? Grain prices have fell since last year, but I wouldn't be surprised to see them going back up, despite promises made by the US.

Stealing my facts from this obviously well researched Wall Street Journal report, China's ascendancy is due to reducing the government share of the economic pie from 30% to 11%. Meanwhile across the big pond, the US is increasing her government's share. Their national government takes 8%, adding the local states the government directly controls over 30% of the economy.

The sum of all of these tidbits is that we are due for interesting times. While Israel's future looks better than ever, the global short-term means that we have to be careful in planning our long term debt, and be aware of the opportunities that uncertainty create.

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

Rapidly changing industry

The Israeli mortgage industry is changing rapidly.

Some banks are introducing new programs, others are limiting existing ones to minuscule portions. Panic remains, a month and a half after Bank Regulator Roni Hezkiyahu announced that he wasn't announcing a 60% limit on debt for residential properties. To make sure that we all understood exactly what he meant, he gave us all this wonderful clarification just a week later. Today he issued a further clarification. Of course, his saying that he didn't expect changes of prices as a result caused an immediate raise in the price of mortgages.

Here is a picture of Hezkiyahu hanging with yet another billionaire whilst making it harder for Shomo want to be a homeowner to become Shlomo Homeowner. [Just to be fair, his job is to ensure that billionaires remains so, and don't endanger them with foolish programs that can jeopardize both the banks and their clients.]

Israel has three bank tiers: the big boys, the wannabes, and the niche players. In general, Nahala Home Mortgages works with only the big banks: Poalim, Leumi and Tefahot. We don't like the middle tier, they are problem-prone and are unable to perform quickly when needed. They promise a lot and usually come up short.

Have you heard the one about the First Interantional Pug? His picture is right here. I think that he is bored from one of the most self-defeating strikes that I can remember. This is almost as bad as a British Airways strike. The workers are striking because they don't make enough money because they are so bad that nobody wants to fly with them, the reason why they don't make enough money. Each day that they strike reduces the number of clients, corporate income, and the ability to earn more. The exact same is the case with The Ben Leumi-Pugi "Group" of banks. Nahala Home Mortgages isn't complaining, however. The wonderful First International Pug Soldier strike has thrown some business our way.

The small niche banks are just what they sound like. We will rarely work with them when they have a program that is particularily appropriate for one of our clients. They offer specialized programs that are particularly profitable for them that answer our specific needs. One bank has a convenient way to get around income documentation. Another bank has a program that they manage to offer for a much better price than their counterparts because they sell it as a loss-leader. They also have some unique programs that the larger banks don't offer for various reasons.

In a departure from this tradition, we expect to see the bigger banks taking their cues davka from the niche banks. Today we have the seen the first of these new programs. We expect to see a lot more in the near future.

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

Cigarette taxes, the dollar, and the Israeli Mortgage

There are new taxes in Israel, on cigarettes and petrol. Those few remaining smokers will now have to pay 1.5-2 NIS more per pack. This is a 10% increase. On the petrol expect a more modest 2% increase.

Bravo! This is the right measure at the right time. Too bad that cigarette taxes weren't raised by 90%. The cost to society of cigarettes is incredibly high. In Israel, with our socialized medical coverage, the high costs of treating the totally superfluous self-inflicted ailments fall on all tax payers, not only those inflicting the damage upon themselves. The real cost to Israeli society of each pack of cigarettes is estimated at over 50 NIS per pack (including our costs of treating cigaridiots, not including peripheral costs such as time of work lost by relatives of cigaridiots undergoing treatment).

Israel's economy is not only stable, it is improving. While countries around the world compete with one another to see who can milk the rich guy the best, in Israel the competent finance ministry has decided to take advantage of the opportunity to help make those who cost us the most pay their own way. We are not a crazy authoritarian society trying to ban cigarettes. We only want people to pay the real price for them. An even better solution would be to rescind the socialized medicine.


The gasoline tax is also great. This won't affect business decisions. It might marginally reduce the number of kids going out for a good time. They should take bikes or taxis, not cars.


What about mortgages? I'm glad that you asked. Petrol makes up 48 points out of 1000 for the consumer price index. [You can find the exact make up right here.] Cigarettes make up 10. If we add 2% to the cost of petrol and 10% to the cost of cancer sticks like this:

we will get a number that might look insignificant, but is really quite profound. The result of this decision is to immediately raise the CPI (מדד) by a quarter point. We have people taking out 800,000 mortgages left and right. This decision just added 2004 shekels to Shlomo Homeowner's debt in most cases.


[Aside: in the long run increased taxation on cigarettes has been shown to decrease the number of smokers, meaning that in a few years from now cigarettes would be a smaller portion of the index and have less of a profound affect. However, in the short-term the demand for cigarettes doesn't change.]


In other news, Deutsche Bank expects the US$ exchange rate to go down to 3.5 by the end of the year. Goldman Sachs thinks that it will be 3.6. As any of my current clients will tell you, I have been predicting this for about a year now.


The cardinal mistake that Shlomo Homebuyer typically makes before he becomes Shlomo Homeowner is to go into his bank to ask for a mortgage instead of consulting with an Israeli Mortgage Expert. Your bank will milk you as much as it can. A real professional will not sell you on a cheap loan, he will reduce your debt.


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

Houses built of Leviathan leather

Flotilla, shmotilla--isn't there any real news out there? Yes, I am about to write about energy again.


In today's real news, the Leviathan off-shore drilling has found gas reserves that are likely to be double those of the Tamar reserves, which have already made Israel more or less energy independent. In addition, there is likely black-gold underneath the magic-vapors! [Have you checked your electricity bills lately? They should look around 10% less than previous thanks to Tamar.] You can read about it in the Calcalist site here: ישנם סימנים שבמעמקים מתחת לגז יש נפט


Did you know that the great gray whale, "extinct" for over two centuries, recently appeared off the shores of Israel. Don't believe me, read about it here in the famously anti-Israel Great British press. For even more fun, you can see a little movie about it here, filmed from my favorite beach in Ashdod:

What are the chances that a drilling named Leviathan would come in right at the same time that our famed Leviathans return to the shores of Zion? Zilch, there is no chance, only Divine Providence.

Now I know that the US$ exchange rate jumped on Monday as a knee-jerk reaction to the other incident off the shores of Zion. I think that it jumped up to 3.90 at one point. As of this writing it is down to 3.84. I make no speculations about to where it might arrive, but it is clear that the more natural resources we discover, the less foreign currency we require, and the rates will drop.

I don't have exact figures, but the number 1B NIS a year is thrown around as the amount that Israelis spend on vacations to Turkey. I know that a lot of people will find alternative destinations, but a lot of that money will also now be spent in Israel instead of in an enemy land. Less demand for foreign currency, more demand for the Mighty Shekel.


What does this have to do with your mortgage? Everything.
Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Signs of Indecision

Confusion abounds at the mortgage banks as everyone is struggling to understand the Bank of Israel's new non-regulations. Take a look at my previous post for a link to the great confuser.

We have seen this in the past, the banks don't really know what the regulator wants from them and they are put on hold.

Right now the banks are approving loans for 60% or less of the value just as before. Loans that are above 60% will undergo increased scrutiny but still be approved at higher interest rates. My expectation is that EMI will go away, and banks will start approving loans up to a maximum of 75% at higher prices without the private mortgage insurance.

For only $1000 a month you can rent this 2.5 room beauty in Bat Yam, only
10 blocks from the beach. Soon this same apartment will probably cost $1500 a month.

I believe that this is a poorly thought through measure that will only be only mildly effective in the short run. It will cause rents to rise and banks to make more money off of fewer clients. It will hurt predominantly working families who don't have a lot of capital and benefit the rich who will increase their stake in investment properties to enjoy the soon to be rapidly rising rent rates.

I haven't figured out what this means for my business yet. It probably means that things will improve, as only those who really know what they are doing will be able to still get the best deals while Shlomo Homebuyer will get even more soaked by the banks, now with the regulator's blessings.

Why don't they just abolish the anachronistic regional/municipal planning committees? Even their official patron has suggested overhauling them. The problem is that the suggested improvement itself is impossible to understand and even if implemented will only marginally improve the situation. If you want to enclose a terrace, you may have to wait years for a permit (or risk incredible fines).

Here is my solution to the housing crisis: allow building on a massive scale. Don't streamline the building committees, get rid of them. If you want a pergola or to build a glass enclosure to add a room to your house, just do it, decriminalize these simple things. Allow people to build on land that belongs to them. Let people build sheds or garages to clear room out of their houses so that extra living space can be freed up. Let people build basements under their entire houses (right now usually only up to a fourth of a house can have a basement) and add an additional floor to their houses. In the cities, any structure that can support another two or three stories should be able to build them, without extra permits.

We are very fortunate to be living in the age of our Redemption, witnesses to the Ingathering of the Exile. We need to understand that many more Jews are on their way, and we don't have sufficient residences for those already here.

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

How can you raise the interest rate when you don't want to raise the interest rate?

This question has been bothering the folk over at the Bank of Israel for some time now. It would be healthiest for the country if the official rate of the  Bank of Israel were would like to have an interest rate at around 4%. For the next month, the rate will remain unchanged at 1.5% (the prime rate remains 3%, read the official announcement here).

Our inflation rate is around 3.5% (last 12 months), giving us negative effective inflation. However, if the Bank of Israel were to raise rates, we would see another movement of foreign currency into Israel to enjoy the higher rates, again strengthening the Shekel. A strong Shekel is hard for us to maintain with our export oriented economy.

There has also been what many see as an over concentration on real estate in the past few years, with almost anyone who could buying an investment property. This is great, but the Bank of Israel thinks that as a result of the interest in investment properties real estate prices have gone up too quickly relative the prices of everything else. Their strategy is this: make home-purchase loans more expensive, people will be able to take only smaller mortgages, and this will create deflationary pressure on home prices.

If you listened to the news yesterday, you would think that all of the mortgage regulations in Israel changed yesterday. In reality the only thing that happened is that the Regulator of the Banks informed the public that it is considering changing some of the rules. Instead of listening to the ridiculously uniformed reports on the news, you can actually read the announcement here.

This is not yet regulation, or even policy. This is little more than a position paper. Already voices are being heard saying that there needs to be a differentiation between the rates on residences and investment properties.

In the end of the day, I don't foresee any major changes. The rationale behind this misses the underlying reason for the current real estate situation: high rents and lack of housing. The only way that both rents and prices can ever be brought down is by building on a massive scale. We don't a project here or a little new town there. We need to build massively. Otherwise, whatever quick fixes they get on the mortgage side will find its way into increase on the rent side, quickly eliminating their perceived changes to the market.

Where did these guys learn economics?

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

סוף מעשה במחשבה תחילה

I know that most of the people  who read my blog are those who  are about to take out a mortgage. I want  to give everyone plenty of head's up: I will be on vacation בין הזמנים. Don't wait until two weeks  before you need  money.

If you need your mortgage before the end of the summer, please contact me now. Though my partner Oded will still be here to service existing  clients, it is best to get everything ready as soon as possible. Lots of people at the banks are also taking vacations at this time, and what should be quick and simple procedures take much longer than expected

Mortgages are fairly simple and straightforward. However,  there are so many small things that could go wrong along the  way, that it is never a good idea to wait until the last minute. To avoid the many potential pitfalls, get approved early, sign on all of the documents and ask for your money early. Of course you should always start by talking with us.

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