Bethel Finance: Banker sees soft landing for housing market

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Bethel Finance news:

Data from the Central Bureau of Statistics, the government assessor, and the Ministry of Finance that were recently published signal a fall in real estate prices for the first time in three years. Concern about a sharp decline in prices is becoming painfully real, as can be seen in financials published by Shikun u'Binui Holdings Ltd. (TASE: SKBN) (Housing and Construction) last week, which included the worrying statistic that only 53 apartment units were sold in the third quarter, the smallest number sold in the past five years, and less than 10% of the number sold in the corresponding quarter last year.

The situation also caught the attention of Governor of the Bank of Israel Prof. Stanley Fischer. "There is a need to quickly market land for building," Fischer said in the Knesset Finance Committee meeting, "But prices need to be lowered gradually, since a sharp decline could cause problems in the construction industry."

Bank of Jerusalem CEO Uri Paz believes that we are witnessing a change of direction in the market. "I think that we have been undergoing a change in the trend for a few months already. There is no doubt that prices have stopped rising, and that we are seeing small changes, in the form of price declines," Paz told "Globes". Paz added that he believes that this decline is also the result of buyers "sitting on the fence". However, he stressed that, "real estate prices are currently stabilizing, and are not falling.

"Fischer's opinion that prices should be lowered in moderation is correct. A sharp fall in prices would harm banks, contractors, and buyers, as well as the economy.

"Assuming that prices fall a nominal 10-15% over the next two to three years, combined with 6-7% rate of inflation, there would be a 20% decline in real estate prices in real terms, which would balance out the recent 25% rise in real estate prices in real terms. This would be considered a "soft" landing, which would be beneficial to the economy - to contractors, entrepreneurs, people paying mortgages, and real estate owners. In order to bring about this scenario, we must release more land."

Are you ready for a situation in which prices fall and contractors go bankrupt?

"Banks are always checking what the worst case scenario is. Currently, in addition to the guarantees that contractors provide, conservative banks are also requiring safety buffers to be prepared for a situation in which prices fall 25%. I believe that even if prices fall 40-45%, the banking system will still be protected, and that banks are prepared for such a scenario. We will feel the risk if prices fall 45-50%.

"The circumstances need to be very extreme for real estate prices to plummet, as in the mortgage crisis in the US."