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Israeli housing prices expected to continue to rise

Short supply of new units and high demand will outweigh increases in interest rates, most observers say.
Israel housing

Israel's housing market has been in a strange situation in recent months. Far fewer transactions have been recorded, but prices have risen dramatically.

As of the 12-month period ending September 2022, housing prices increased by 19%. Meanwhile, a review by the Finance Ministry, published earlier this month, shows that in Q2/2022, 27,000 units were purchased on the open market — a 19% drop from the same period in 2021 and the lowest level since Q3/2020. 

Buyers are sitting on the sidelines waiting for prices to fall after the Bank of Israel's interest rate hikes, as well hoping that some real estate investors will soon realize their profits by putting their assets on the market, adding to supply.

However, on the opposite side, other buyers want to close a deal right away, fearing future housing price increases if a comprehensive government plan for the sector is not implemented soon.

Ohad Danus, former chairman of Israel's Real Estate Appraisers Association, speaking to Israel's public broadcaster KAN, said the market has "become tired" of the government's incompetence in dealing with the housing crisis.

Until 2020, prices increased at around 5% per year, but the double-digit jump began in 2021. Tzachi Quatinsky, a prominent real estate consultant, explained to Al-Monitor that the outbreak of COVID-19 has spurred a huge demand in residential real estate — not only from young couples, but also from investors who were looking for an alternative to the troubled commercial real estate market.

If the shortage of 150,000 housing units in the market is added, the jump in prices can be understood, Quatinsky said. Another factor, he added, is the lack of construction of rental apartments. Eran Orbach, a real estate attorney, told Al-Monitor that the pandemic contributed to the price explosion since it created a huge demand after the market was halted during most of 2020.

Estimates for the future are not optimistic. Danus projects that the interest rate increase will have a certain moderating effect and that in 2023 prices may drop in certain areas. Orbach predicts that in the areas of demand, e.g. around Tel Aviv, the increase will not stop. "There will be a certain slowdown, but over time housing prices will continue to rise," he said. Quatinsky also foresees that the interest rate hike will slow down prices for a certain period, but in the long term they will resume their upward trend due to insufficient supply.

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