The increase in housing prices has stopped, so the data of the Central Bureau of Statistics finally announced (here are the full data). If there was a feeling that prices would ‘go up forever’ – the Bank of Israel interest rate (and not the government’s plans) arrived and proved that housing prices can definitely be curbed. The increase in interest rates significantly slowed down the number of transactions in the market, the mortgages – and starting last week, housing prices as well. Officially this is not yet a drop, but in the field you can also see price drops. The contractors give promotions – and in practice this is a drop in prices. According to the CBS data, we see a price drop in the prices of the new apartments as well. It is still only 2.4% but it is already a change of direction – the interest rate has also defeated the contractors.
In the US, the Case Shiller index for housing prices already indicates a decrease for four months, in fact in some areas of the US there is already talk of a 10% drop in prices, and in other countries in the world such as New Zealand, prices are dropping even more.
Apparently, this is also great news for the young public in Israel who cannot buy an apartment at the high prices and wants to see a drop in prices. But will we see a significant drop in prices in Israel? The contractors will of course tell you no (they have such an interest…) on the other hand, quite a few analysts say yes.
But it is Uri Greenfeld, the chief strategist of Psagot Beit Investments, who cools the hopes and says that there is a big difference between Israel and the US: “The increase in interest rates on mortgages in the US and in Israel is doing, in accordance with the plan of the central banks, its work in the real estate markets the locals. Demand dropped both here and in the US by tens of percent, the supply is still high and prices react accordingly.
“Before we continue with the analysis, we’ll just note that the drop in prices, in the US or Israel, was of course null and void in sixty when you take into account the surge in prices in 2020-2021, so it’s still really early to say that something fundamental has changed in the real estate market. Therefore, it’s worth examining the basic demand and supply in the market The real estate in the USA and Israel in order to try to assess where things are going.
“As a base assumption, let’s assume that the interest rates of the Bank of Israel and the Fed will remain high until the end of the year and will decrease at the beginning of next year. In the US, the basic demand for housing in the last ten years is about 1.1 million new households every year. In comparison, the number of construction starts in the US has been higher than this level since 2015, so the excess supply in the US market has been building for years and has not been reflected until now mainly due to demand created by private and institutional investors.”
So why, in his opinion, will prices in Israel not drop significantly?
“In Israel, on the other hand, the increase in the number of households stands at about 54,000 per year, while construction starts until the middle of 2021 averaged about 55,000 and only increased in the last year and a half to 70,000. In other words, if you look at the basic forces in the real estate markets” In Israel and the US, the situation is completely different. In the US there is a long-term supply surplus and in Israel there is a demand surplus.
“Now, when you look ahead, there is no doubt that construction starts in both Israel and the US will decline in the coming years. The drop in prices and the high credit costs encourage the contractors to slow down the pace of construction in order to maintain a positive cash flow as much as possible. Given the figure above, the real estate market in Israel will return to equilibrium much faster compared to the American one, so it is very likely to assume that the drop in prices in the local market will be more moderate and will last much less time compared to the one in the American market.”
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