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By Izzy Leizerowitz |
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07 March, 2023 |
The Sky is Falling (Not), The Sky is Falling (Not)
The real estate news coming out of Israel recently has been categorized anywhere from “concerning” to “extremely bleak” in the last month or so. Sales have been down, and the time to close has been lengthier. Mortgage rates have gone up, and the Shekel has taken a pounding versus the US Dollar in recent weeks. Alarmists are crying out that the real estate “bubble” in Israel will burst soon enough and property values will plummet. Then, when you throw in the current political unrest domestically, the recession climate globally, and of course the ongoing security problems with Israel’s close neighbors, one could not be faulted if they were to reconsider purchasing property in Israel for the short future, and waiting for prices to go way down, and pluck up properties at bargain basement prices, just like in 2008/2009.
However, this strategy could just as easily backfire and an investor or potential homeowner could regret waiting as they scratch their collective heads wondering why prices are just slightly stabilizing or even still increasing. What would be driving this counterintuitive real estate market to hold its own against all the pressures we just mentioned? The answer is found in the basic economic principle of Supply and Demand. Depending on whose statistics you follow, we went into 2023 with an ongoing shortage of around 150,000 housing units, and with an annual increase in the number of Israeli households of about 50,000 to 60,000. The economic climate, rising interest rates, and supply chain shortages, only serve to dissuade developers from building more, which will only increase the problem.
Adding to this issue is the continuing growth of Israel’s population. With the average Israeli family now consisting of at least 3 children, Israel's annual population growth rate stood at 1.5% in 2022. Where are all these kids going to live when they grow and have their own families? Israel Real Estate apartment pricing for the last few months has been misleading. While the luxury market and the upper middle-class markets have shown a slowdown in price growth or stabilization, or in some cases a reduction in markets that were severely overpriced in the last year, there are many middle and lower-middle-income areas where new developments and projects are properly priced and thus still show very strong demand and related sales. Until the Israeli government intervenes and creates new progressive incentives or policies to motivate builders to build new projects and more of them or create new types of affordable housing structures, the unresolved demand will keep prices where they are or upwards. Even if people can’t afford to buy apartments, investors, with government incentives could buy apartments that would support the growing rental market. Conservative estimates over the last few years show an average of 4% increase year over year for Israeli real estate.
In summary, while dark clouds form all around the Israel real estate market from internal and external pressures, it might be foolish to not take advantage of the temporary price stall, or the favorable currency market if you pay in US Dollars. Israel has operated in many areas, and for many years, on a bend but not break philosophy, and I expect nothing different this time around.
However, this strategy could just as easily backfire and an investor or potential homeowner could regret waiting as they scratch their collective heads wondering why prices are just slightly stabilizing or even still increasing. What would be driving this counterintuitive real estate market to hold its own against all the pressures we just mentioned? The answer is found in the basic economic principle of Supply and Demand. Depending on whose statistics you follow, we went into 2023 with an ongoing shortage of around 150,000 housing units, and with an annual increase in the number of Israeli households of about 50,000 to 60,000. The economic climate, rising interest rates, and supply chain shortages, only serve to dissuade developers from building more, which will only increase the problem.
Adding to this issue is the continuing growth of Israel’s population. With the average Israeli family now consisting of at least 3 children, Israel's annual population growth rate stood at 1.5% in 2022. Where are all these kids going to live when they grow and have their own families? Israel Real Estate apartment pricing for the last few months has been misleading. While the luxury market and the upper middle-class markets have shown a slowdown in price growth or stabilization, or in some cases a reduction in markets that were severely overpriced in the last year, there are many middle and lower-middle-income areas where new developments and projects are properly priced and thus still show very strong demand and related sales. Until the Israeli government intervenes and creates new progressive incentives or policies to motivate builders to build new projects and more of them or create new types of affordable housing structures, the unresolved demand will keep prices where they are or upwards. Even if people can’t afford to buy apartments, investors, with government incentives could buy apartments that would support the growing rental market. Conservative estimates over the last few years show an average of 4% increase year over year for Israeli real estate.
In summary, while dark clouds form all around the Israel real estate market from internal and external pressures, it might be foolish to not take advantage of the temporary price stall, or the favorable currency market if you pay in US Dollars. Israel has operated in many areas, and for many years, on a bend but not break philosophy, and I expect nothing different this time around.
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