From time to time there are announcements on behalf of officials in the real estate industry , explaining why apartment prices are too high. Year after year, opinions are published describing expectations for housing price declines. On the other hand, others state that prices will only continue to rise. To put things in order, we checked what the latest statistics are about housing prices. We also checked whether there are any indicators that point to the trend for next year and what might blow the cards and surprise.
Housing prices in 2022 are soaring compared to 2021
A government left and a government came in, but even the previous government was unable to stop the galloping of the housing price train in Israel. Publications of the Central Bureau of Statistics (CBS) showed that as of the third quarter of 2022, buyers of an average apartment are required to pay two percent more for a residential apartment. If you compare the statistics to what we saw the year before, the average price of an apartment increased by more than 15 percent. This is an average increase of over one percent each month. These days, the price of an average residential apartment in Israel is close to two million shekels. And in numbers, the average apartment price is about 1,930,000 NIS compared to 1,895,000 in the previous quarter.
Is the rise towards containment
A conference that recently hosted some of the top leaders of the industry in Israel predicts that the increase in housing prices in Israel is reaching a turning point. It is important to put things on an appropriate scale. At the conference they described how in the last ten years we have seen that real estate prices do not stop. The last year showed a jump in the graph of rising prices, although just a year before they predicted that the change was already at hand. But indeed now, you can see an accumulation of indicators that support the change. Most of the parties agree that the price increase is about to be curbed. Some go so far as to state that at least in some areas of the country we will see a real decline.
All the indices that predict a change
- Interest rate in a positive trend (price of money on the rise) – after years in which cheap money manifested itself in mortgages at floor prices, we see that the Bank of Israel has raised the interest rate in several installments. The soaring interest rates, not only in Israel, make the mortgage burden heavier . When mortgages become more expensive, people already think twice before buying a first apartment or before upgrading the apartment and moving to a new apartment. Also, the increase in interest rates encourages real estate investors to realize properties in order to get a fairly good return, without “dealing” with tenants.
- Real estate supply in a positive trend (more apartments “on the shelf”) – after years of low supply in relation to demand, it can be seen that there is a change. The indicator that indicates this in a prominent way is the construction permits. In 2021 and 2022 there was a dramatic jump in the number of permits and permits Construction issued. If we continue to see new permits (tens of thousands were granted per year), this means a jump in construction starts. Historically, an increase in the supply of apartments brings with it pressure to lower prices. Contractors will want to hand over an increased inventory of apartments and the result is a willingness to lower prices or provide discounts for early sales. To this we will add an increase in the supply of apartments that real estate investors are expected to put up for sale.
- Inflation and recession – a combination of inflation and recession means an expected slowdown in economic activity. And this time, not only traditional sectors are cutting back on manpower. A contraction and even layoffs were recorded this year in the technology (IT) industry. Since this is a sector that has driven up apartment prices, it is expected that the trend will now reverse. High-tech people will be less in a hurry to buy apartments, which will create additional pressure to lower prices.
- Long-term rental – there are observers that the next government will give priority to the development of long-term rental (agreements for ten years or more). If indeed this issue is dealt with in a massive way, this will be an incentive to lower the price and compromise on the part of apartment sellers (contractors and real estate investors who want to realize).
In conclusion, after a decade of dramatic price increases that peaked in the last year, it can be assumed that the change is about to begin. In fact, you can already see the buds of the new trend these days. However, if geopolitical shocks occur or we see more crises in the stock markets (which will attract investors to return to real estate), things may look completely different.
