Israelis accumulated total of NIS 504 billion in debt
Rising mortgage debts, increases in consumption of durable goods and high employment are all contributing to rising standards of living in Israel; Knesset Finance Committee warns of parallels to 2008 US subprime crisis.
Israel's mortgage debts, as well as other loans, have crossed the threshold of half a trillion shekels for the first time, reaching NIS 504 billion ($142.7 billion)—an increase of 23% over the past three years, with the average debt per household in Israel (about 2.5 million) at about NIS 200,000 ($56,600).
Naveh notes that in recent years, there has been an accelerated growth in the consumption of durable goods, such as cars, refrigerators, dishwashers, washing machines, etc., especially among the weaker segments of the population. The zero-interest environment and the high employment rates contributed to the increase in private consumption. These trends may also reflect a change in the "consumption standard," which means a rise in the standard of living.
But there is also a less positive aspect this rise in consumption, which is its funding, derived from loans that increase the debt of households. Naveh notes a similar situation occurred during the subprime crisis in the US in 2008. In recent years, the volume of credit to households grew at a rate similar to that in the years prior to the subprime crisis, preceded by high levels of public leverage in many developed countries.
The chief economist cautioned that in 2016 household credit increased at a rate of 7.5%, while non-housing credit expanded by 9%. The rapid growth of household credit has been going on for the past three years, following a period of five years marked by slow growth.
This shows that the expansion of private consumption is financed, at least in part, by credit. Due to the lack of a reliable database on the extent of foreign credit to individuals, the overall increase in credit may be even faster.
During a discussion in the Knesset's Finance Committee, Dr. Yossi Saadon, Head of the Macroeconomic Policy Department said, "When we identified mortgage risk, we took measures to maintain the stability of the financial system, but also of the families. There is a disturbing nominal growth in household debt, but it is still not at the level of risk. When the credit for housing is lowered, we are not among the lowest in the world, since many citizens take loans to buy a car, finance trips and more, and that does bother us."
