Featured Post

Free The Hostages! Bring Them Home!

(this is a featured post and will stay at the top for the foreseeable future.. scroll down for new posts) -------------------------------...

Jul 29, 2013

Twitter conversation about demanding the slashing of housing prices

This is an interesting discussion I had on Twitter yesterday (in Hebrew). Tell me by the end if I was wrong or right in my line of thought.

It began when some fellow wrote, cynically:
Bringing down prices of apartments by 50% is impossible because it will hurt the wealthy, but releasing tens of thousands of Haredim to compete with the poor for lousy jobs at minimum wage?

To that I responded with two comments:
1. knocking real estate values down by 50% will also hurt regular homeowners who already bought apartments, not just the wealthy
2. do you therefore prefer Haredim not working and collecting welfare money from bituach Leumi? and, Haredim are a large percentage of the poor you refer to!

Regarding my 2nd point, he only answered with a brief comment, so I will mention that first. He said:
I never said that, but working in Israel today does not take one out of the cycle of poverty, even with both spouses working.

To which I agreed, and let it drop, though he did not actually respond to my point that he seems to have a problem with the fact that the government will hurt the poor by bringing Haredim into the workforce. He seems to prefer Haredim stay out of the workforce and keep collecting welfare so he can then complain that his taxes are paying for the chosen poverty of the Haredim.

The main thread developed from my first comment. I had said:
knocking real estate values down by 50% will also hurt regular homeowners who already bought apartments, not just the wealthy

to which Nitay responded:
I do not understand how this hurts a couple who bought an apartment to live in, besides for upsetting and frustrating them.

I then said:
you have reduced the value of my apartment by 50%. I have lived in my apartment for 15 years and tomorrow maybe I want to sell it and buy something a little bigger. But I cannot because my apartment is worth only half of what it was worth yesterday.

to which Nitay said:
it is worth less than when you bought it?

to which I responded:
if you bring down real estate values by 50% it will be. that is what will happen!

to which Nitay said:
considering the way home prices have risen in the last 15 years in Israel, that is not logical. and even if, the prices of the new apartments will also be cheaper by 50%, no?

to which I said:
perhaps, but maybe they will only lower property values on new and small apartments, for young couples. Also, why should I, and how would I, pay back my mortgage on a house that is now worth half the value?

to which Nitay said:
like before. your ability to repay it has not been harmed. it is upsetting, but possible.

to which I said:
you do not understand. If my apartment cost 750,000 NIS, and I took out a mortgage of 500,000 NIS, and now you deduct the value of my apartment to say 380,000 NIS, why would I pay back my mortgage? I would go bankrupt!
I should pay back a 500,000 NIS loan on a house that is now worth much less than that? I will default on my loan and let the bank foreclose my house. the whole system will crash, like it did in the US.

After that he no longer responded.

so, what do you think? did I get it right or wrong?

This is how I have seen the problem with the social protests and the demands for the government to lower housing prices drastically. I feel bad for young couples starting out, and maybe the government should depress prices a bit. They should release land for construction all around the country, which will bring prices down in a natural way rather than artificially depressing them. The demand that the government slash housing prices though is something that might be good for young couples, but will destroy everyone else in Israel who already own a home and holds a mortgage. It would force people to default on their loans and the banks would crash from having to write off all those loans.

Reach thousands of readers with your ad by advertising on Life in Israel


  1. I didn't think about your point regarding flipping houses - selling one's own home would leave a debt. So the only way to buy a new house is keep the old mortgage and move it to a new house.

  2. They can't reduce housing prices drastically, for the simple reason that this would leave the mortgage banks hanging - if people would default on their mortgages, they would no longer have a viable lien to get their money from. It is impossible, it would seem, to reduce prices only on small apartments - that would necessarily lead to a drop in prices on old and large apartments as well.

  3. no substitute for the free market where housing values are set by supply and demand...but the banks destroyed the principle by manipulating the financial mkts in the US and Israel Land Authority does it here

  4. I think you're missing one point.
    You bought your house when it was 750,000. The house is probably worth much than that now. In fact, there is nothing decent on the market for that price at all. The prices have gotten ridiculously high to the point where young couples can not enter the market.

  5. even a 10% reduction would kill the economy (i've heard this from various economists).

  6. You are spot on Rafi! Banks don't give 100% mortgages to cover themselves in the event of price fluctuation but reducing by 50% would destroy the banks and the economy.


Related Posts

Related Posts Plugin for WordPress, Blogger...