The consequences and market impact of the Israeli housing bubble: Ken Research

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Introduction: There has been growing concern among industrial experts working in Real Estate Industry Research firms tracking the Israeli housing market over the past decade to the growing prices of homes and the increasing rate of rent in Israel. Home prices and Home Rent rates in Israel have skyrocketed over the decade providing an economic boom for the real estate sector and the economy at large. Finance Minister of Israel, Moshe Kahlon attributed that construction leaped from an annual average of 30,000 units built in previous years to 130,000 as of 2018. The growing home value saw increased investment through debt, exponentially fueling the level of credit which was being issued towards the real estate market, exposing banks to higher levels of risk. Credit as a % of the housing loans have increased from 43% in the early 2000’s to 52% as of 2017 showing a bigger amount of the capital entering the real estate market is on a credit basis which implies the majority of the money being put into the system is not actually there. Rates for inflation linked fixed mortgages have jumped from 2% in May 2015, to nearly 4% as of 2018. The increase in prices led to median home rates for a 3 Bedroom apartment in Israel being at USD 920,000. This is troubling for an economy where the median income is USD 35,000. The increasing prices and growing population concerns among political and economic agenda propelled by politicians and financial institutions could soon lead to turmoil in the Israeli housing market causing a major dent in the economy for Israel and its partner nations.

Housing Spurt: From 1999 to 2007, house prices in Israel rose by just 19% while the CPI increased by 24% over the same period. House prices in Israel have climbed exponentially from 2007 to 2010. There has been a major growth between 2010 and 2017 as well. The housing price index which was at close to 250 in 2010 has jumped to over 400 in 2018. The Increase in demand for housing has been mainly due to growing accessibility between central employments areas like Tel Aviv and remote regions without much opportunity for employment causing large scale migration towards economically beneficial regions leading to an increase in property rates. Aside from the growing population the lack of government regulation on housing has led to massive levels of price inflation of homes. The threat becomes quite clear when considering the majority of mortgages are inflation linked making them as or more dangerous than Adjustable rate mortgages. The only beneficiary of the increasing inflation rates and prices being financial institutions and developers, there is a high possibility for financial turmoil in the Israeli economy. The effects are already being noticed as since the first quarter of 2017, there has been an increasing value in the housing market despite a constant decrease in the number of homes bought. The inflation rates and frequent revisions in property valuation have made Israel top the list in rising home prices for the year 2017.

Market Effect Beginning: Some 9,700 homes were bought in January 2017, while the monthly average for 2016 was between 9,000-10,000, aside from October, when only 4,700 homes changed hands. The percentage of homes bought by investors was 16%, similar to levels throughout 2016. However, the stock of apartments for rent fell 1,400 in January, as investors began to sell off their holdings. January’s figure of 9,700 homes sold is 5% lower than the number in December 2016, and 3% more than the figure for January 2016.The only distinct figure for January was a drop-off in the number of new homes sold. This was offset somewhat by sales of second-hand homes and sales by investors.

Conclusion: If the housing market does not correct itself soon, there will be a major financial crisis in Israel. There have been measures taken by the government in 2018 to begin “cooling the market”. This includes boosting purchase taxes, and adding an extra levy on owners of three or more apartments. That has helped lower the % age of investment transactions from 40% of the total pool in early 2016 to about 15 in 2017. The government, which controls most of Israel’s land, boosted construction starts by more than 10% in 2015 and 2016 to more than 50,000 annually, to address a supply shortage that many economists see as a major source of the price rise.

Key Factors Considered in the Report:

Real Estate Market Research Reports

Real Estate Industry Analysis

Market Research Reports for Real Estate

Real Estate Industry Research Report

Real Estate Market Research Reports Consulting

Real Estate Business Review

Real Estate Industry Research and Market Reports

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https://www.kenresearch.com/manufacturing-and-construction/real-estate/SC-97-38.html

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Ken Research

Ankur Gupta, Head Marketing & Communications

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+91-9015378249

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