In 2009, a record of annual price increases was recorded, of more than a decade at the time, while the apartment price index recorded an increase of 19.9%. With an annual increase recorded in the latest index, which reaches 17.8%, the housing price index of 2022 blows on the back of the previous record, and this apparently in a situation where the prices were supposed to be reined in: interest rates are rising, inflation has begun to raise its head as well, with the buds of a recession standing next to it .
So what is happening in the real estate market, which seems to be defying them? It seems that both the government and the Bank of Israel, each in turn, forgot the immortal sentence from the movie “The Good, the Bad and the Ugly” – “When you have to shoot – shoot. Don’t speak”, and when they had to take drastic measures – they preferred to speak.
More precisely, on both occasions these bodies engaged in chatter, and on both occasions the prices flew up. In the last quarter of last year it was clear to everyone that the government was going to raise the purchase tax for investors.
This has been discussed many times, the ministers themselves, headed by Finance Minister Avigdor Lieberman, have scattered hints in abundance, but internal political problems in the government and problems between the coalition and the opposition greatly delayed the tax increase, giving the market more and more time to organize itself for the expected increase, which was finally approved in November. The result was that in the three months after the Tishrei holidays, prices rose by 5.2%.
Then came the Bank of Israel. Already in the first quarter of the year, an atmosphere of an expected increase in interest rates was created in the economy. When the interest rate was raised for the first time last April by 0.25 percentage points, there was talk of an expected step and not only: the Bank of Israel emphatically stated that this was the first and perhaps a slight increase, in an expected series of further increases. Indeed, in May the interest rate was raised by 0.4 percentage point, and then in July the interest rate was raised by 0.5 percentage point.
How exactly were those people who planned to buy apartments supposed to behave in those days? The answers to this come from two directions: from the report of the chief economist, it appears that starting from March, the number of transactions in the residential apartment market began to decrease compared to the corresponding period last year; The Bank of Israel showed that the number of mortgages did decrease, but the average mortgage taken on the free market – increased.
From this the conclusion emerges, that the increase in the interest rate at the beginning deterred some of the potential buyers, who decided to drop their intention to buy an apartment; However, those who did remain internalized the messages from the Bank of Israel and the economic media that the interest rate is expected to rise further, and rushed to purchase apartments for themselves while they could and while the prime interest rate was still relatively low. The result – between mid-April and mid-June, apartment prices rose by 3.5%.
Real estate: one of the most deceptive markets out there
What will happen next, with the interest rate increase from July, and perhaps those that are still expected – it is hard to know. The real estate market is not an alchemical exception in the economy, but it has already proven more than once, that it is one of the most deceptive markets there is.
In these two months of the first interest rate increases, the Jerusalem District stands at the top of the index with a particularly sharp increase of 4.8% in apartment prices, followed by the Tel Aviv and North districts which recorded increases of 4% each, and Haifa which recorded a 3.6% increase. The other districts recorded lower increases than the total increase (as mentioned 3.5%).
The trend described in the price indices is also significantly strengthened in the prices of transactions carried out in the second quarter of 2022. The price of an average apartment purchased in this quarter reached 1.88 million shekels, an increase of 4.4% and 80 thousand shekels compared to the price of an average apartment purchased in the first quarter of this year. And an increase of almost NIS 200 thousand and 11.6% compared to the price of an average apartment purchased in the second quarter of 2021. You need to read this figure once more to understand how different today’s market is from the market of a year ago, and how much today’s transaction prices exceed all imagination of yesterday.
Apartment prices cannot leave rental prices behind
Against the background of this situation, the rent prices should be examined, because it is difficult to imagine a situation in which apartment prices will soar at such high levels, while the rent will remain at its previous level.
According to the CBS data, the non-public rental rent section increased by 0.6% in July, however there is a huge gap between the various renters: approximately 86% of the renters are under an existing contract and therefore the index for them remains almost unchanged; for 10 The percentage of tenants who renewed a contract increased by about 3.5%, while the new tenants and those who move apartments suffered a price increase of about 7%.
Also last month, the contract renewers and the new tenants suffered significant price increases: the former had to sign contracts that were 3% higher than their old contracts and the latter will pay a price that is 6.5% higher than what the previous tenants of the same apartments paid.
These are significant figures, at least some of which coincide with the lowering of the supply of apartments for rent by the state, through the increase of the purchase tax on investors. This step not only did not stop the increase in apartment prices – which have only increased since then; it also explains at least part of the increase in rental prices.