The apartment market has gone crazy. I became convinced of that finally last week when a friend of mine from Jerusalem decided to move to Tel Aviv. That in its own right is not a crazy decision - quite the opposite.
But after she looked at apartment after apartment, she decided to rent a three-room flat in the center of Tel Aviv for $1,700 a month. True, it is a very nice, well-kept apartment, but nevertheless, $1,700 for three rooms? What is going on?
My Jerusalemite friend is not alone. My local real estate agent has been calling people around the neighborhood over the past few weeks, and offering them buyers at ever higher prices, all on his own accord and even if they don't want to sell.
The housing market is quite complex: Its movements are dictated by a large number of variables. The rise in housing prices over the past two years, after almost a decade of low prices, was caused by a number of factors: The growing economy has improved our financial lot and has created an atmosphere of prosperity; the massive purchasing by foreigners, mostly from France; the small supply of apartments in high-demand areas; the erosion of the dollar; and low interest rates for mortgages.
Alongside these factors is host of reasons, less macro-economic, that are driving prices up. For example, the money that parents give their children to purchase an apartment.
Many parents save for an "apartment for the children," and encourage their children to buy their own home using a sort of grant: "If you buy an apartment we will help you and give you $100,000."
The young couple, who may have very well thought to rent instead of buy, now has an incentive that completely changes their calculations and interests.
Now the young couple is in a hurry to buy, because they might just lose out on their "parent grant"; also, they are willing to spend much more, since they have a serious sum in their pocket.
And so it is that parents, who are only trying to help their children, are actually helping to raise housing prices.
In recent years, the trend of splitting apartments into smaller units to increase the amount that can be made off of them has grown. Apartment owners split their flats into two separate units, at a minimal cost, and immediately increase their profits enormously.
This also raises prices, since the split makes the rent for three- or four-room apartments higher than for smaller ones.
The market is hot, and that leads people to take risks. This is a wonderful time to sell, but necessarily a good time to buy.
The opportunity to sell an apartment and stash the money in the bank in the hope that housing prices will fall, is too dangerous for most people since the interest rates on bank deposits is low - and rents are sky-high.
Today's housing market reminds me in some ways of the happenings in the stock market. Suddenly everyone is interested in apartment prices and real estate investments. Everyone is busy checking out how much their house is worth, and how much they would need to add to move up.
But just like in the stock market, the more people are the involved, the closer we are to the top of the market. For now, it is still a market for sellers and brokers.
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