Government Struggles to Contain Prices

Home Prices Climb, but Israelis Keep Buying Out of Fear

Tel Aviv and Ashkelon lead the increase while Jerusalem, Rehovot and Rishon Letzion see decline.

Prices for four-room homes in 16 surveyed cities rose 1.9% in the third quarter of the year, the government Assessor's Office reported Sunday, with the sharpest increases registered in Tel Aviv and Ashkelon. This figure brought the year-on-year rise to 5.6%.

Prices in Tel Aviv reached an average NIS 2.66 million in the third quarter, 5% higher than in the previous three-month period and 6% higher than a year earlier, putting it at a level beyond the reach of most home-buyers. In contrast, the average price in Ashkelon, while up by similar percentages, was still just NIS 881,000.

The third-quarter rises come as the government is struggling to contain home prices with measures ranging from limits imposed on mortgages by the Bank of Israel to plans by the treasury and Housing Ministry to increase the supply of rental housing and speed up construction. But experts said the public is piling into real estate out of fear that prices will keep climbing.

"Despite all the warnings and restrictions, the Israel public has simply stopped relying on decision makers and is taking care of itself," said Ohad Danus, chairman of the Real Estate Appraisers Association in Israel. "As we've warned in the past, without systematic and fundamental treatment by the prime minister from above, it seems everything else will continue unchanged. The policy isn't being implemented or at least it's not evident."

At the other extreme, prices in Jerusalem, Rehovot and Rishon Letzion showed a 1% decline on a quarter-to-quarter basis. The average price for a four-room home in Jerusalem was NIS 1.76 million, in Rehovot it was NIS 1.3 million and in Rishon Letzion, where prices rose 6% from the year before, it was NIS 1.46 million. In Jerusalem and Rehovot, however, prices gained a more moderate 2% to 3% on the year.

Year over year, the steepest increases were seen in Modi'in and Be'er Sheva, rising 9% to an average of NIS 1.55 million for a four-room unit in Modi'in and NIS 835,000 in Be'er Sheva. In Herzliya, prices rose 8% over the 12-month period to an average of NIS 1.93 million, whereas in Ashdod prices climbed 7% to an average NIS 1.23 million.

Government Assessor Tal Alderoti pointed out that the third-quarter figures came against a backdrop of a state budget that calls for higher taxes and other measures aimed at cooling demand by investors for property. Although these should have held prices down, there was no evidence of that in the third quarter.

"The public believes that the steps being taken by the government to increase supply massively will only come to fruition and affect prices in the medium and long range," said Alderoti in a comment on the price report. "In addition, global economic uncertainty and instability mainly in Europe continue to overshadow the real-estate sector in general and residential housing in particular, and influenced its behavior over the surveyed quarter."

Alderoti also cited the decline in the rate of housing starts and the sustained high level of demand for reducing the inventory of unsold homes on the market by 8% in the year to July 2013.

Meanwhile, the volume of activity in the mortgage market continued rising last month. According to estimates in the banking sector, some NIS 4.6 billion in new mortgages were taken out by the public in October, 35% more than in October 2012 and 7% more than the average over the previous 12 months. If the pace since the beginning of the year is sustained, 2013 will be a record year for new home loans, reaching NIS 52 billion and surpassing the NIS 47.2 billion registered in 2010.

In August, the banks supervisor at the Bank of Israel imposed new restrictions that prevent banks from granting mortgages requiring monthly payments exceeding 50% of the borrower's income. Although these restrictions officially took effect at the beginning of September, a two-month grace period was permitted for granting mortgages under the old rules in cases where home buyers initially approached the bank for a mortgage prior to September and a binding agreement was signed by the beginning of November. As a result, the Bank of Israel said the impact of the new restrictions cannot be evaluated until November mortgage figures are released next month.

Yael Engelhart