Statistics and Reality

bakaa balconySometimes statistics and reality just don’t seem to align.  Recent news indicates that housing prices are up 4.5% in 2012 and yet agents like myself will tell you the market has never been slower since 2000-2004.  As one who primarily deals with real estate in Jerusalem and Tel Aviv and their peripheries, most sellers have had to lower prices 10-15% lower from the highs in 2010 to secure a buyer.  It’s possible the statistic reflects this year only and not in relationship to the past three.

Still the price of housing here remains almost punishing in that Israel in its large cities is a market that affords only a small apartment for the price of 128 salaries.  Boiled down it means that the average couple earning an average salary each cannot afford basic housing in a major city or periphery with a 30 year mortgage.  And yet, somehow they buy.

Traditionally young couples are helped by their parents and moving up the housing ladder has allowed Israelis who already owned for a decade or more to see a significant increase in their property value enabling them to cash out for significant profit.  Before the shekel stabilized property was seen as the only way to have a savings account when runaway inflation regularly ate up the value of one’s money. Investors in those times now see a tremendous return, unlike those who invested in real estate in the USA.


Israeli’s spend nearly 50% of income on housing

The tent protests of summer which were tolerated for months by government and police are now coming to a close.  The largest countrywide demonstration in Israeli history took place over last weekend with over 400,000 coming out to protest the high cost of living; specifically housing.

After watching the rise of rental prices in early spring to their subsequent fall in August, it has become plain to me that Israeli’s are simply saying “we will not pay”.  I have seen properties who would not budge on their rental price sit on the market for months, while owners who are serious about renting have had to lower their prices to secure a tenant. The adage of “just because they are asking doesn’t mean they are getting” has proved true as the same properties continue to recycle on popular web advert sites. To the converse, those who are priced attractively, particularly in Tel Aviv,  have lines of people willing to take their properties.

In the meantime Israeli buyers are standing on the sidelines hoping all the flux in world economies that are most closely related to here, such as Europe and North America, will help to lower purchase prices as well.

According to Haaretz not just the poor but all classes of economic society here are spending the same on housing.  As Israeli’s are standing on the side hoping for prices to decline, the core problems of housing shortage remain as the country’s young population continues to grow well above the replacement rate for a country. This scenario will probably continue to keep prices relatively high even if there are slight market fluctuations.

Housing purchase tax reduced

The treasury department announced a change in the purchase tax rate to allow the tax exemption on the purchase of a home for the first 1,350,000 NIS.  Although the move is said to benefit at least 8000 couples who will purchase this year rising prices continue to strain the new buyer who will have to come up with a 40% cash downpayment on that amount.

The 40% guideline is in effect to try to restrain the rise in housing prices which rose 17.3% since 2008 with the average four-room apartment rising in cost 29% within that same time period according to the government assessor’s office’s statement published last Monday.

Some areas have seemed to have capped that were on a steep rise, such as central and north Tel Aviv and central Jerusalem, but prices in the relatively more affordable areas of Maale Adumim, Modiin, Beer Sheva and other outlying districts are now seeing more rapid rises in valuations as demand increases.

Home prices expected to rise

According to today’s Jerusalem Post home prices are expected to rise quickly across Israel. The  Bank of Israel’s government appointed head, Stanley Fischer will likely take macro-prudential measures to try to control this expected price rise.

Israeli’s traditionally believe in housing as the most  solid investment for themselves and their offspring. In order to combat this national tendency Fischer is raising the interest on funds deposited in the bank 2.25%  as an incentive to keep the populace’s money in the bank rather than invested in real estate.

In spite of actions taken in the summer to increase cash downpayments to 40% the number of loans given was 10%higher in Oct.-Nov. than last year Dec. 2009.  Last year, house prices increased 17.3% as interest rates remained low and the supply of houses fell short of demand.

Last quarter areas in the country that had not seen steady rises suddenly rose sharply, Beersheva and Hadera 8%. Jerusalem and Tel Aviv steadied at a 3% rise. Only Eilat saw decreases at 4%.

Housing prices since 2008 have risen overall in the country a whopping 29.4%.

Real estate prices remain high due to low inventory

According to the Marker, the business magazine of Ha’aretz daily news, the low inventory of new housing is continuing cause prices of the inventory of existing homes high.

A major factor in the reduced inventory is related to the availability of land that can be released for development and the high costs involved.  The Land Authority indicates that the limitationof available land is adding to inflation of prices in the existing sector as well as prices for homes under construction.

A delicate balance between state inteference and private enterprise and the Bank of Israel is required to keep interest rates affordable and yet not so low as to increase inflation.

According to CBS the average price increase in the cost of Israeli apartments last year was 20%.