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By Izzy Leizerowitz |
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26 December, 2022 |
Why Housing Prices In Israel Will Not Be Going Down Anytime Soon
Most recently, clients and potential clients of mine have been telling me that they will wait until prices go down on buying a property, whether a resale or from a project on paper. In the past that strategy in Israel has only led to them having to pay a lot more for their homes later on, or abandon the idea all together. Now they seem to think that world-wide indicators of an overall real estate price slowdown and reduction will also impact the Israel home buying market, and once again are holding off. My response has been to tell them they are making a mistake yet again. This article is why I think waiting due to the world economy is not the best home purchase strategy here in Israel. I believe that there are significantly greater forces impacting current and short-term future pricing trends. Here are several relevant factors to consider:
Construction Costs Keep Rising
Price increases relating to the materials and products used in home construction and to the rental of equipment and vehicles (including fuel costs) for building sites continue. Global events relating to weather, fuel, and shipping delays, all continue to add to the overall costs facing builders. The construction index, so far in 2022, has continued to mirror these rising costs. Israel’s Population Growth and Maturity In an article by Keren Setton in TheMedialine.org on April 28, 2022, it was summarized that the number of households in Israel grows an average of 2% annually. “The number of apartments being built is significantly lower than this and, thus, the demand is much larger than the supply and the prices have dramatically risen.” More significantly, in the same article, it was stated that data collected by Eckstein, Elisha Ziv, and Sergei Sumkin at the Aaron Institute, show that there is a shortage of 100,000 apartments every year as new households are created in Israel.
Building Starts and Finishes Fluctuate
Building starts were made on 70,250 homes in Israel between October 2021 and September 2022, the Central Bureau of Statistic reports, down 3.1% from a peak of 72,540 building starts between July 2021 and June 2022. In terms of building finishes 49,830 new homes were completed between October 2021 and September 2022, up 3.9% from the corresponding period between 2020 and 2021. Between the period between July 2021 and June 2022, 49,650 homes were completed. So, while we started building 70,000 units annually, only approximately 50,000 new units were finished in the most recent 12 months, and we still face a 100,000-unit annual shortage. Not a great ratio for increasing supply versus demand.
Immigration Continues to Rise
According to an article released just this past week in the Jerusalem Post by Zvika Klein, he reported that “Some 70,000 new immigrants from 95 countries made Aliyah in 2022 with the assistance of the Jewish Agency and the Aliyah and Integration Ministry, the agency said in a special report published on Thursday. It was the largest number of olim to arrive in 23 years and a dramatic increase over the previous year when only 28,600 new immigrants were welcomed. In addition, 12,000 young adults came to Israel as part of Masa Israel Journey, a joint program with the government.”
If you throw into the equation that we now have thousands of more families arriving every year and looking for housing, the demand versus supply equation just keeps going up and up.
I understand that we never know what factors will come into play in the next one to three years that could override the factors above and create an overall market price reduction scenario. At best, prices may stabilize for a while, especially if they have been ridiculously overpriced from the start. Any price reductions you may see now are in markets where greedy sellers and developers have simply been overextending their estimation as to what the public will pay, BUT based on all the factors above, I still believe that there is no better time to buy.
Construction Costs Keep Rising
Price increases relating to the materials and products used in home construction and to the rental of equipment and vehicles (including fuel costs) for building sites continue. Global events relating to weather, fuel, and shipping delays, all continue to add to the overall costs facing builders. The construction index, so far in 2022, has continued to mirror these rising costs. Israel’s Population Growth and Maturity In an article by Keren Setton in TheMedialine.org on April 28, 2022, it was summarized that the number of households in Israel grows an average of 2% annually. “The number of apartments being built is significantly lower than this and, thus, the demand is much larger than the supply and the prices have dramatically risen.” More significantly, in the same article, it was stated that data collected by Eckstein, Elisha Ziv, and Sergei Sumkin at the Aaron Institute, show that there is a shortage of 100,000 apartments every year as new households are created in Israel.
Building Starts and Finishes Fluctuate
Building starts were made on 70,250 homes in Israel between October 2021 and September 2022, the Central Bureau of Statistic reports, down 3.1% from a peak of 72,540 building starts between July 2021 and June 2022. In terms of building finishes 49,830 new homes were completed between October 2021 and September 2022, up 3.9% from the corresponding period between 2020 and 2021. Between the period between July 2021 and June 2022, 49,650 homes were completed. So, while we started building 70,000 units annually, only approximately 50,000 new units were finished in the most recent 12 months, and we still face a 100,000-unit annual shortage. Not a great ratio for increasing supply versus demand.
Immigration Continues to Rise
According to an article released just this past week in the Jerusalem Post by Zvika Klein, he reported that “Some 70,000 new immigrants from 95 countries made Aliyah in 2022 with the assistance of the Jewish Agency and the Aliyah and Integration Ministry, the agency said in a special report published on Thursday. It was the largest number of olim to arrive in 23 years and a dramatic increase over the previous year when only 28,600 new immigrants were welcomed. In addition, 12,000 young adults came to Israel as part of Masa Israel Journey, a joint program with the government.”
If you throw into the equation that we now have thousands of more families arriving every year and looking for housing, the demand versus supply equation just keeps going up and up.
I understand that we never know what factors will come into play in the next one to three years that could override the factors above and create an overall market price reduction scenario. At best, prices may stabilize for a while, especially if they have been ridiculously overpriced from the start. Any price reductions you may see now are in markets where greedy sellers and developers have simply been overextending their estimation as to what the public will pay, BUT based on all the factors above, I still believe that there is no better time to buy.
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