Good news for the public – raising the Bank of Israel interest rate does stop the rise in housing prices – we explained more than a year ago that the change in the housing market will only come when the interest rate in the economy rises. Housing prices increased in December by only 0.3% (after increases of 1-2% each month in the past year) and completed an annual increase of 18.8%. True, it’s not a price drop yet, but it’s already in the air. Beyond that, the CBS data is delayed by a month, which means that it is a change in the prices of the transactions in the months of October-November. Next month there is a good chance of a complete stop in the price increase.
Don’t believe housing prices can go down? According to the CBS: “A previous significant moderation in the rate of price increases began in 2016 to the point of price decreases in the last three quarters of 2018.” Here is the graph:
A 2.4% drop in new apartments, excluding transactions with government subsidies – already now
When you segment the data into new apartments, you see a 2.4% drop in the prices of new apartments. According to the CBS, the prices of new apartments decreased by 0.9% in the months of October-November, but when the transactions with government support are deducted – it is a decrease of 2.4%.
Where did the prices go down?
Price decreases have already been recorded in the North, Center and South districts: according to the Central Bureau of Statistics, in the segmentation of apartment price changes by district in the months of October – November 2022 compared to the months of September – October 2022, the following price changes were found: Jerusalem (2.4%), North (-0.9%) ), Haifa (1.9%), Central (-0.6%), Tel Aviv (0.9%) and South (-1.4%).
Compared to the corresponding period last year, October-November 2022, compared to October-November 2021, price increases were recorded in all districts: North (21.7%), Center (21.0%), Haifa (20.1%), Tel Aviv (18.0%), South (16.3 %) and Jerusalem (15.9%).
Rent – continued increase of 8.2% for apartment changers
The rent section increased by 0.4%. But for tenants who renewed a contract there was an increase of 4.4% and for the new tenants (apartments in the sample where there was a change of tenant) the prices increased by 8.2%.
And back to the consumer price index – the consumer price index increased in December 2022 by 0.3% and completed an annual increase of 5.3%. Notable price increases in December were recorded in the sections: transportation by 1.1%, housing and medical services by 0.6% each and apartment maintenance which increased by 0.2%. Notable price decreases were recorded in the sections: fresh fruits and vegetables which decreased by 2.8%, culture and entertainment which decreased by 1.4%, clothing and footwear which decreased by 1.0% and furniture and home equipment which decreased by 0.7%.
In the entire year, significant price increases were recorded in the areas of transportation and communication by 9.2%, housing by 6.3%, apartment maintenance by 5.7% and food by 3.6%. A price drop of 4.6% was recorded in 2022 in the clothing and footwear section.
Also the index of input prices in residential construction – unchanged
The residential construction input price index remained unchanged in December 2022. In 2022 (December 2022 compared to December 2021), the residential construction input price index increased by 4.8%, due to the increase in the prices of materials and products by 9.2%, car equipment rental by 3.0% and wage prices Labor by 1.1%.
Among the materials and products, the prices of air conditioning (by 4.9%), waterproofing (by 2.3%) and wall and floor tiles (by 2.1%) increased especially in December 2022.
On the other hand, the prices of iron nets (by 3.0%) and the prices of iron for construction (by 1.1%) decreased.
The wage price index paid for those employed in the industry increased by 0.2% in December 2022.
The price index of industrial output for local destinations
In December 2022, the price index of the industrial output for local targets decreased by 1.8% and the non-fuel index decreased by 0.5%. In 2022 (December 2022 vs. December 2021), the industrial output price index increased by 8.6% and the index without fuels increased by 5.4%.
This month, the prices of refined petroleum products (by 10.4%), clothing products (by 7.0%), metal products (by 3.6%), wood products, except for furniture (by 1.9%) and textiles (by 1.7%) decreased . In contrast, the prices of electrical equipment (by 2.0%), motor vehicles and trailers (by 1.4%) and paper and its products (by 1.2%) increased
And what about the Bank of Israel’s next interest rate decision?
The central bank is expected to make its next interest rate decision on February 20, that is, after the publication of another figure of the consumer price index, so that the Bank of Israel can also consider the next figure before the interest rate decision. As a reminder, the Bank of Israel interest rate rose at the beginning of the month to 3.75% and the prime rate stands at 5.25%.
Another figure that will affect the Bank of Israel is the interest rate decision by the Fed, the central bank in the USA. It is expected to raise the interest rate at the beginning of February. The market expects a further slowdown in the rate of raising the interest rate to 0.25%. The interest rate in the USA is now in the range of -4.25 4.5%
Yoni Penning, chief strategist of the transaction room at Bank Mizrahi Tefahot, says that “next month we will also expect stability in the inflation figure, and an interest rate increase of a quarter of a percent in February. From here on, we will expect a considerable moderation in the inflation environment, which will help set the interest rate at a level of 4.0%. Past experience shows that Periods of interest rate stability, after a series of increases, do not tend to last long, and end with a series of determined interest rate cuts.”
Here is what we said more than a year ago – housing prices in Israel will stop not because of any government program, but only when the Bank of Israel raises the interest rate, and here is what is actually happening: