Israeli housing prices soared a record 19% over the last year, according to a report by the Central Bureau of Statistics (CBS) published Friday, the largest year-on-year jump since price tracking began.
Prices have been climbing steadily since the second half of 2018, but their continued rise defied predictions, a drop in demand and the reality in most global housing markets, which are seeing prices slow or fall.
Overall, the cost of living also continued to go up, although at a more modest rate. The consumer price index (CPI) rose 0.2% in September, taking the index up to 4.3% for the year to date, and up 4.6% year on year.
Rises in the overall cost of living were driven by higher prices for fruit and vegetables, up 3.3%. But if housing and fruit and vegetable costs are excluded, the increase falls to a seasonally adjusted 0.2% growth for the month, a slower rate of growth than has been seen in the last seven months.
Many food prices, excluding fruit and vegetables, have fallen, with fresh fish down 7%, tahini down 4.7% and rice down 3.9% from previous levels. Milk, however, has gone up 2.1%, and fresh produce bought by shoppers show double-digit rises, with peppers up 11.4%, cucumbers 11% and watermelon 47.8%.
Healthcare costs showed a modest 1% rise, while educational and cultural activities were steady, with a 0.1% fall reported.
The rising housing costs appeared to defy the logic of the market, which saw a drop in demand for new housing, rising mortgage costs and homes remaining on the market for longer periods.
Outrage over the spiraling housing costs and the rising cost of living has been growing across the country, more than a decade after Israel last saw widespread social unrest on the matter.
As the CPI and house prices continue to rise, the likelihood is that the Bank of Israel will continue to increase interest rates to prevent the economy from overheating. In turn, this will further raise mortgage rates, making it increasingly difficult for would-be-buyers to find loans that match the rising prices.
According to the data, new tenants were experiencing rent increases of 8% per month, but that excludes many tenants on continuing leases and therefore immune — for the time being — to the massive inflation in house prices, which feeds through to the rental market too.
In July to August, compared to June to July, the average home rose in price by 1.9%, the third highest month-on-month increase over the last year, according to the data from the CBS.
Increases were being driven by rises of 2.6% and 2.8% month on month in the North and in Jerusalem, respectively. Housing inflation in Tel Aviv was 1.9%. Figures of 1.8% in the center as a whole and 2.0% in Haifa represented a slight slowdown in inflation compared to last month’s numbers.
Year on year all regions, however, were showing double-digit house price inflation, with the steepest increases in Haifa (20.1%) and the North (20.3%) which have in the past typically been cheaper areas in which to live, and in the center (21.2%).
Both new and second-hand properties were trending up: July to August 2022 showed a 23.2% increase in the pricing for new properties compared to the same period last year. But one factor contributing to price inflation for new homes — the growth in costs of materials and therefore increases in the construction index — has tapered off, with no increase to the index in September.
Other market data published by the CBS reported that demand for new housing dropped 3.1% in July, while sales of new housing fell by 5.3% on the previous month, with only 2780 new apartments sold in July and apartments frequently remaining on the market unsold for many months.
After making seasonal adjustments, the market was down 14.4% May to July compared to the previous three months. Oversupply, longer sales periods and decreasing demand should lead to a market in which house prices are likely to fall — but that doesn’t seem to be happening. Vendors of new apartments seem to be holding out for the higher market price, and ready to keep a property empty or rented out until they can get it.
Volumes of new apartments changing hands have now been falling for more than six months. From May to July, market activity fell in Tel Aviv and Haifa (though only by 2.6% and 1.9%, respectively), Ashkelon (19.3%), Ramat Gan (35.2%), Beit Shemesh (31%), Rishon Lezion (28.9%), Beersheba (17.7%), Ashdod (17.7%), Nehariya (2.2%), Petach Tikva (16.6%) and Harish (19.5%).
The highest growth levels for new apartments sold compared to the previous month were in Or Yehuda (up 242.4%) and Dimona (up 155.7%), which currently offer cheaper housing options. Also showing growth were Netanya (22.3%), Jerusalem (9.9%), Bat Yam (15.6%), Ramat HaSharon (84.6%), Eilat (13.3%), Afula (10.6%) and Raanana (2.5%).
The only markets in which more than 400 new properties were sold over the three months from May to July were Netanya, Tel Aviv, Jerusalem and Ashkelon.
It continues to be the case that a little under a quarter of new properties sold — 22.6% — were sold with a subsidy through one of the government-supported schemes (Mehir L’Mishtaken and more recently Mehir Matara).
Research by global banking network UBS has identified the potential for a housing bubble that will pop in the near future in Tel Aviv because of the rising gap between house prices and wages.