Gil Befman, Chief Economist of Bank Leumi (photo by Oren Dai, Flash 90, Magma Images)
Gil Befman, Bank Leumi’s chief economist, and Dodi Reznik, the bank’s interest rate strategist, estimate today that the moderation in the rise in apartment prices will continue into the year, when prices should even drop in the next two years.
In the weekly review issued by Bank Leumi to its customers in addition to its transactions, the two write that in December the sub-section Tenant-Owned Housing Services (which reflects the rent prices in new and renewed contracts) increased by approximately 0.7%, compared to November. This figure resulted in an acceleration in the annual rate of increase of the subsection in December 2022 to 6.3% (a record of about 11 years) compared to 5.9% in November. “Looking ahead, in the background of apartment prices that continue to rise, even if with a slight slowdown, rental prices are expected to continue to rise in the coming months.”
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The two also write to the bank’s customers that the year 2022 amounted to inflation of 5.3% (during the year), after a price increase of 2.8% during the year 2021. Since 2009, and the highest in the last 20 years (2003-2022), in which the target of 1%-3% exists, during which inflation amounted to an annual average of 1.4%.
“Looking at the rate of inflation in the last 12 months, it seems that the current rate is very close to its peak and in the coming months a decrease in this rate is expected. Also, among other things, following the announcement of the government’s measures to reduce the cost of living at a point (the reduction of the planned increases in the prices of electricity, water and property tax) , we have revised down the inflation forecast for 2023, which is now around the center of the target (2%). In addition, we estimate that the Bank of Israel is expected to raise the interest rate by 25 basis points in the next decision to the level of 4%.”
As for real estate prices, Befman and Reznik write that the total number of new apartments sold in the 12 months ending in November 2022 was about 41.9 thousand apartments – about 29.5% lower than the record level recorded in January of last year. “This is as a result of a number of factors, including: The rapid increase in the Bank of Israel’s interest rate (from a level of 0.1% at the beginning of 2022 to 3.25% at the end of November), the acceleration of inflation (from an annual rate of about 3% at the beginning of 2022 to a rate of 5.3% in November), as well as the reduction of the scope of activity of real estate investors Following the purchase tax increase at the end of 2021.
“Against this background, the inventory of unsold apartments continued to rise, and in November of last year stood at approximately 50,000 apartments. These trends are reflected in the continuation of the relatively sharp increase in the number of months of supply (the period of time in which the inventory of apartments is expected to be sold given the rate of sales), which increased to approximately November 19, 2022 compared to approximately January 10.
“The activity indicators from the housing market are at a level that supports the formation of pressures to stop apartment prices, and it is possible that a modest (nominal) price drop may be sought. In this context, we note that although the rate of increase in apartment prices is still in the vicinity of a record of about 12 years, under the influence of the increased demand for apartment purchases which was until recently, however the latest figure indicates a slight slowdown.
“Apartment prices increased by 0.3% (October-November 2022), the lowest monthly increase since the beginning of 2021. The annual rate of increase of apartment prices moderated to about 18.8% compared to 20.1% in the previous month (according to the monthly apartment survey of the CBS which is not included in the consumer price index).
“It seems that this moderation corresponds to the beginning of the process that was presented by Leumi several months ago, of a significant slowdown in the “inflation of apartment prices” and even a moderate nominal decrease in prices during 2023-2024″ they conclude.
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