Israel's Finance Minister Lauds a Fall in Home Prices, Even as They Rose

While they are still below their peak, as Moshe Kahlon noted, the CBS said they increased in March-April

Moshe Kahlon, Israel's new Finance Minister, attends a meeting at the Finance Ministry in Jerusalem, May 18, 2015
REUTERS/Ronen Zvulun

Finance Minister Moshe Kahlon was quick to celebrate the latest figures on home prices Friday, but his conclusions and even his numbers didn’t square with the data issued by the Central Bureau of Statistics.

The CBS reported Friday that home prices had edged up a preliminary 0.1% in mid-March to mid-April, after remaining unchanged in the previously equivalent period. On a year-on-year basis, prices were down 0.2%, it said.

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But Kahlon, who has made reversing a 10-year rise in housing prices his ministry flagship project, chose to focus on the downward trend since prices peaked at the end of last summer, rather than on the latest data.
“The drop in prices in the housing market is deepening. The annual decline doubled. Since the start of the year, prices have fallen 2.1%.

Prices for new homes have fallen 3.6%,” Kahlon wrote in a tweet. “No one can stop this trend. In the next few years, interested parties will try to tell you otherwise. But we’ve burst the bubble.”

Had a nice fall Housing price index

In fact, home prices are down 2.4% since the August-September index, so when Kahlon said “since the start of the year,” he presumably meant the Jewish year. However, the decline he mentioned occurred mostly at the end of 2017 and in the first six weeks of 2018. 

Since then, home prices have stabilized and even rose slightly; they dropped just 0.4% since the start of 2018.

Kahlon also called attentions to the even steeper, 3.6%, decline in the prices of new homes since the end of the summer. But in the March-April period alone, the rise in new home prices was an especially sharp 1.6%.

Whatever the trend, housing market analysts don’t regard prices for new homes as a very important barometer of the market. The index is comprised of a small number of sales, usually in the range of 1,500 to 1,700 a month, so the index is subject to volatility. 

Moreover, the index doesn’t take into account factors such as what region of the country the homes were in, nor does it adjust for the government-subsidized prices for houses sold through the Mehir Lemishtaken (buyer’s price) program, the centerpiece of Kahlon’s strategy for cutting housing prices). 

The data from the CBS and other sources show that home buyers sought cheaper properties in the last two quarters, buying homes in lower-cost areas or fixer-uppers.  That means they are paying less for a home, but not that home prices are necessarily falling. 

As to the overall consumer price index, the CBS reported Friday that prices rose 0.5% in May. That made the highest monthly inflation figure since April 2015 and the highest May figure since 2011.

Nevertheless, inflation remains moderate: Since the start of 2018, prices have risen 0.78% and in the last 12 months they were up just 0.5%. That compares with the government’s annual inflation target of 1% to 3%. The CPI has been under 1% for the past four years.

As a result, the Bank of Israel has left its base lending rate at a record-low 0.1% since early in 2015. The central bank’s economists believe the benchmark interest rate will remain at that level for most of this year, rising in the fourth quarter to 0.25% as inflation reaches 1.1% for all of 2018.
The two biggest factors driving up inflation in May were the prices of fresh produce, which jumped 17.2%, and of apparel, which rose 7%, both due to seasonal factors.