Mortgage Costs Skyrocket Six Times Faster Than Official Inflation Rate

A new study by the Taub Center reveals that the actual cost of mortgages in Israel has surged significantly faster than official inflation figures suggest. Researchers calculated that the average interest rate on mortgages jumped by 42% in 2022 and 52% in 2023, a rate six times higher than the official consumer price index (CPI) reflects for the same period.

The discrepancy arises because Israel's Central Bureau of Statistics (CBS) calculates the housing component of the CPI based on a theoretical rental value, not actual mortgage payments. This method, used in many countries including the US since 1999, aims to stabilize the index during housing market fluctuations but excludes the real cost of borrowing for homeowners.

Researchers Professor Benjamin Bental and Dr. Leviv Shami developed an alternative index that measures the actual cost of financing a home. Their findings indicate that during 2022 and 2023, as the Bank of Israel aggressively raised interest rates to cool demand, homeowners faced a double blow: rising property prices and significantly higher monthly mortgage repayments.

While the researchers emphasize their alternative index is not intended to replace the official CPI but rather to provide a more comprehensive understanding of the economic impact of monetary policy, their findings could bolster arguments for legislative proposals aimed at easing the burden on mortgage holders. However, Professor Bental stated he does not support certain controversial legislative initiatives, citing valid criticism they have received.