Cost of Living: Inflation at 0.3%, but Housing Up 7.7% in Year

The housing market has been in flux as buyers wait to see whether Finance Minister Yair Lapid’s 'zero-VAT' bill is approved.

Real estate properties in Tel Aviv.
Ofer Vaknin

The consumer price index rose 0.1% in July, the Central Bureau of Statistics announced Friday, bringing inflation for the past 12 months to just 0.3%. If housing costs are excluded, prices actually declined by 0.5% over the past year. There was a steep drop, 7.5%, in the price of clothing and shoes while the cost of books rose by 9.3%.

The housing market has been in flux as buyers wait to see whether Finance Minister Yair Lapid’s “zero-VAT” bill is approved. The housing price index fell 0.2% in June from May, but was still up for the year.

For May and June housing prices were 7.7% higher than the same period last year. The average home price was 1.3 million shekels ($375,000) in the first quarter of this year.

The average monthly rent rose by 1.1% in the second quarter of the year compared to the first quarter and by 6.7% compared to the second quarter of 2013. There were 18% fewer purchases of new homes in the first half of this year compared to the first half of 2013, but home prices have continued to rise relatively steeply, figures from the Central Bureau of Statistics show, as does a separate survey of average home prices that factors in home size and location.

That survey shows that the greatest increase in home prices in the second quarter compared to the first was away from the center of the country, particularly in the south, where the increase was 6.1%. This came before the outbreak of the fighting in the south, but it remains to be seen what effect, if any, the military operations there might have in suppressing or perhaps boosting prices.

Looking ahead, Uri Greenfeld, the chief economist at the Psagot investment firm, said inflation as a whole is expected to continue to be low, as a number of factors keep overall consumer prices down.

“On one hand, the slowdown in the economy in general and among individual consumers in particular are causing a slowing of local demand and are not allowing prices to rise. On the other hand, government reforms in various sectors such as communications, food, motor vehicles, etc. are also pushing prices down in these fields. It’s also important to note a change in the behavior of the Israeli consumer, who is now much more price-sensitive,” he said.