Housing prices dip slightly but remain about 10% higher than in 2022

Housing prices in Israel are continuing to slide, dropping 0.2% in March-April 2023 from February-March 2023, but remain about 10% higher than the corresponding period last year, according to a new monthly report on the housing market released on Thursday by the Central Bureau of Statistics (CBS).

This is a substantial reduction on the market peak last year, when costs had increased by more than 20% year-on-year, but it means that housing continues to become increasingly expensive compared to average salaries and the growth in prices for goods and services. The average monthly salary for an employee stands at around NIS 13,000 ($3,660) as of March 2023, according to CBS.

Annual inflation in the purchase cost of homes is now running at close to double the increase in the overall cost of living through the period. According to a separate report by CBS Thursday, the consumer price index (CPI) — a measure of inflation that tracks the average cost of household goods — increased by 0.2% in May, below analysts’ expectations of between 0.5% and 0.6%, and brings annual inflation over the past 12 months to 4.6%, after hovering around 5% for more than six months.

In the housing market, the latest CBS report shows that the biggest dip in prices was in central Israel, with a reduction of 1.9%, followed by southern Israel (down 1.4%), and northern Israel (down 1.3%). Prices remained steady in Jerusalem, while in Tel Aviv they rose by 1.3% in March-April 2023 from February-March 2023.

Prices for new-build homes also saw a dip, by 0.2%, likely as a result of the much-reduced number of transactions reported earlier this week by the Finance Ministry, which is putting pressure on developers’ cash flow.

But here too, prices of new dwellings increased by 10.3% in March-April 2023 compared to the corresponding period last year.

Buyers have been squeezed by the higher prices and rising interest rates that have hiked their monthly costs. The Bank of Israel has repeatedly upped interest rates over the past year in a bid to bring down inflation. In May, the central bank set the rate at 4.75%.

As the number of real estates transactions have fallen to a 20-year low, dropping by 55% year-over-year in April, Bank of Israel figures show that April also saw the lowest levels of new mortgage borrowing since the beginning of the pandemic, at NIS 4.6 billion ($1.83 billion), the lowest since October 2019. In April 2020, buyers borrowed NIS 4.9 billion ($1.38 billion) for mortgages.

Monthly borrowing has been decreasing from an all-time high in March 2022 of NIS 13.4 billion ($3.94 billion), just before the bank started raising the benchmark interest rate from a historic low of 0.1%, which it had kept throughout the pandemic.

In the rental market, prices have also risen significantly. Monthly rents for new tenants rose by 8.6% from last year, while tenants renewing leases saw asking prices increasing at 3.6%, according to the report. Housing expenditures such as brokerage fees and insurance went up 0.5% in May, according to CBS.

Meanwhile, the residential construction input price index fell back by 0.1% in May, taking the annual increase in residential building costs to 2.5%. After sharp increases last year, costs of materials such as iron, metal products, and imported concrete have gone down slightly.