“The prices of apartments have increased in the last year at a double-digit rate due to an abnormal surge in demand for housing purchases. Following the increase in interest rates and the increase in the purchase tax and the economic slowdown, there has been a decrease in demand for housing. This will lead to a significant slowdown in the increase in apartment prices starting in early 2023 and even to a slight decrease in prices.” So writes Dr. Gil Bafman, Bank Leumi’s chief economist in a review published yesterday.
In conclusion for 2022 and in the forecast for 2023, he estimates: “There is a mixed trend in residential construction. The volume of completions has only recently started to increase. On the other hand, the volume of building permits is currently at a peak, about 80 thousand housing units per year, a factor that is expected to support the stabilization of apartment prices in the coming years.” .
Dr. Bafman added: “In the field of offices, the increase in rental prices and occupancy will continue in the coming months, but at a slower pace. The city of Tel Aviv may demonstrate superior performance compared to the suburbs, where there will be a significant increase in the supply of offices.”
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In terms of inflation, the year will end with an index of 5%-5.5% and will fall back to the price target range (1%-3%) in 2023 with inflation of 2.2%-2.3%. The forecast is for the stability of the shekel in terms of the annual average exchange rate.
Inflation will be reduced thanks to the opening of the bottlenecks and the implementation of measures to reduce the cost of living by the new government. The Bank of Israel will increase the interest rate by another half a percent and it will stand in 2023 at 3.75%-4.25% per year.
If inflation does not stabilize during 2023 in accordance with the target of price stability, the Bank of Israel will be expected to raise the interest rate further, beyond the above.
Bank Leumi estimates that the GDP in 2022 will increase by 6% thanks to an increase in private consumption and in 2023 it will decrease to 3.4%. The deficit will be zero and the GDP debt ratio will decrease. If the possibility of exporting gas on an increased scale through a pipeline to Europe or through gas liquefaction opens up, this will contribute to growth.
In relation to the capital markets, it is written that since 2022 was bad in terms of the markets, the shares are trading at reasonable prices, although not cheap. The performance of the stock markets will also depend on the depth of the slowdown in 2023. The poor performance of the bond markets is not expected to repeat in 2023.