Israelis have been paying more for their homes statistically speaking than official government figures have been showing, new research from the Central Bureau of Statistics shows.
A study obtained by TheMarker found that using a new and more accurate calculation, the average price paid for a home in predominantly Jewish urban areas in 2011 was 15% more than previously reported, or 1.26 million shekels ($361,000) rather than 1.09 million shekels. While the new method has only been used so far to update 2011 price figures, it will result in substantially increased average prices for 2012 and 2013 as well.
The new method of calculating prices does not affect the real-estate market, but it will put added pressure on the government to bring down the cost of housing. Using the old calculations, Israelis on average needed to pay the equivalent of a steep 136 monthly salaries to buy a home, a figure that now rises to 156.
The new method was developed after statistics bureau researchers Larisa Fleishman and Yuri Gubman discovered a significant bias in the conventional method for measuring home prices due to the fact it was based on reported sale prices. They found that home-sale figures reported to the Tax Authority – the ones used to calculate average price – were significantly lower than the average provided by respondents in predominantly Jewish cities in the bureau’s surveys of household expenditures. The survey, among other questions, asks people what they actually paid for their home.
They also found that the average floor space was 82.4 square meters for homes in the Tax Authority sales figures, compared with 112.2 square meters in the household survey. Likewise, homes from the Tax Authority sales figures had on average 2.5 rooms, compared with 3.2 in the household survey.
Because smaller homes are traditionally sold more frequently, their prices rise faster on average than those of larger ones. Thus, a small property worth 1 million shekels might be repeatedly sold over a period of several years, while a larger home worth 2 million shekels turns over once. While the average value of the two is 1.5 million shekels, the multiple sales of the smaller home will bias the average downward.
The main innovation of the CBS researchers was to adjust the property prices recorded from property sales to the figures the statistics bureau collects every few years in its household expenses survey, which includes data for urban home prices.
The adjustments don’t create an across-the-board rise in the average home price. The average price for homes in Jerusalem and Tel Aviv, Israel’s largest cities and home to its priciest real estate, were revised downward. In Tel Aviv, the average home price was revised downward by about 10% to 1.8 million shekels from a previous 1.98 million shekels. In Jerusalem, the average dropped to 1.46 million shekels from 1.66 million shekels, a 12% drop.
However, Tel Aviv and Jerusalem were exceptions. For almost all other cities the new method saw the average home price rise. In Haifa, which has seen many apartments bought as investment properties in recent years, creating a downward bias in average home prices, the average home price actually rose to 12.5% to 886,000 shekels from 788,000 shekels. In Be’er Sheva, a city where residential property investment has driven the market, the average rose 12% to 721,000 shekels from 643,000 shekels.
Nevertheless, staff at the CBS caution that the new statistical model is still being adjusted and that the new figures for home prices should not be regarded as final.
Several months ago, an inter-ministerial team was established to improve the quality of real estate figures in Israel. National Economic Council chairman Eugene Kandel was appointed to lead the team.