S&P: Israeli Home Prices Going Nowhere But Up

Construction work on new homes outside Afula. Photo by Nati Shohat/Flash90
Construction work on new homes outside Afula. (Nati Shohat/Flash90)

For those waiting for prices on homes in Israel to fall before buying an apartment, international credit firm Standard and Poors (S&P) has a clear message: Don’t. With current supplies limited, demand continuing to rise, and a clear trend whereby housing starts are not sufficient to cover projected demand, housing prices are clearly set to rise in the coming years.

With that, price rises are likely to level off, as the intervention by the government to temper price rises has an effect on the market. If housing prices have been jumping 6% to 8% in recent years, the increases will drop to 3% to 4% over the next few years, said S&P.

Part of the reason for that falloff is the coming rise in interest rates, in Israel and worldwide. The Bank of Israel on Monday announced that it would keep its benchmark interest rate at 0.1% for the next month at least, despite a recent .25% increase by the Fed for U.S. rates. The BOI said that the Israeli economy would continue to grow, but by less than expected – 2.4% over the next year, instead of the 3% predicted in September. But in its latest report, the bank said that it expected Israeli interest rates to rise to 1% by the end of 2017.

Speaking Monday, Finance Minister Moshe Kachlon appeared optimistic that housing prices would fall – but not as optimistic as in the past. Kachlon said that he had done a great deal to temper prices during his term as Finance Minister, but “we aren’t there yet.”

As more projects featuring government-mandated affordable housing are built by contractors as part of their deals to receive building permits, prices will moderate – but to achieve that goal, the country needs some 70,000 new apartments, Kachlon said. According to S&P, it could be years before that happens; by last September, some 46,000 homes of all kinds, many of them luxury units, had been built over the previous 12 months. Sales in October, meanwhile, were 35% higher than they were in October 2014. S&P expects demand to continue rising, which means that prices will continue rising, unless and until the government embarks on massive building plans, the organization said.