Is there a real estate bubble in Israel?

For those hopefuls waiting for a future of lower prices, sorry to say the answer is “no”. According to Ha’aretz, July 27, 2010, the rising prices in the housing market are what this author agrees with, what is going on now is a correction.  Prices dropped from 1999-2004 where there was little growth or development.  This has created pent-up demand with no end in sight. There are growing numbers of households in the country exceeding new construction rates driving all prices upwards.

Ha’aretz describes a “real estate bubble” as created when the financial conditions enable land and housing prices to climb and climb, and borrowers base their decisions on the assumption that asset prices will continue to increase.

Throughout history, real estate bubbles have been characterized by a rapid increase in borrowing by buyers: They bring less and less equity to the deal, and borrow a greater and greater proportion of the home’s value.

Israeli banks have held to tough lending policies for decades, demanding an average of 20-40% down ensuring equity as well as qualifying buyers.  The banking crisis in other Western countries is not happening here.

What is happening is rental prices are being driven up due to the fact that older couples, new immigrants and young couples cannot afford to own in the hubs in which they are working. This may indicate a slight correction in prices, but little hope for those who will continue to look outside their work areas to farther flung suburbs for their housing needs.

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