A paper by researchers from the Faculty of Architecture and Town Planning at the Technion - Israel Institute of Technlogy concludes that price levels in the local housing market are showing signs of reaching bubble proportions similar to those elsewhere in 2007, before the global economic crisis. The researchers do not, however, expect that prices will collapse here as they did in other places then, thanks to the structure of the mortgage market and the current housing supply.

The paper, by Dr. Danny Ben-Shahar and doctoral student Yakov Varshavsky, will be included in a compilation of essays published researchers from University of California Berkeley. In it the two examine the patterns of housing prices, focusing on the affordability of homes in Israel between 1989 and 2010 in terms of average net monthly household income. The researchers found that between 1989 and 2008, the number of monthly incomes required to cover the price of an average dwelling rose from 47 to 60, or by 28.8%. However, while for the top 10 percentile of income-earners this rose from 25 to 28 monthly earnings, or 13.6%, for the bottom 10 percentile it soared from 109 monthly wages to 170 - a 56.7% increase.

In analyzing affordability in different cities the researchers found that for the wealthiest 10 percent of the population, the number of monthly household incomes required to purchase a home in Tel Aviv rose from 1989 to 2010 by 10 to 43, while for the poorest 10 percent, it rose by 120 months' salaries to 264 over the period. In Haifa the poor fared better: Purchasing a home there required "just" 112 monthly earnings in 2008 for the lowest 10 percent of earners, up 19 from 1989.

The researchers think that rising home prices in 2009 and 2010 have probably led to an even more extreme situation than the situation they found in 2008. "We have found that the ratio of housing prices to income has recently reached not only an all-time high but diverges dramatically and consistently from its long-term trend," says Ben-Shahar. "Potential home buyers and policy makers must carefully examine this disturbing phenomenon in comparison with worldwide housing markets in 2007, just before their collapse, so that it won't occur in Israel too."