Israel's Home Prices to Keep Rising Over Next Year or Two, Goldman Says

But the Goldman Sachs report notes that Israel, Switzerland and Germany are at high risk of falling prices over the next five years - by as much as 30%.

Housing prices have jumped nearly 40% since the beginning of 2009, the steepest rise in the Organization for Economic Cooperation and Development, according to a study by Goldman Sachs released over the weekend. The U.S. investment bank expects the trend to continue over the next year or two.

Goldman divides countries into two categories – high-fliers where prices have taken off since the global economic crisis, and low-fliers where prices have declined. Israel leads the first category comfortably.

The high-fliers also include Norway, Switzerland, Canada, Germany, New Zealand, Finland, Australia and Sweden. Since 2009, home prices have risen 11% on average in the high-flying countries, while the drop has averaged 20% in countries where prices have declined.

Goldman Sachs believes that Israel, Switzerland and Germany are at high risk of falling prices over the next five years – by as much as 30%.

The investment bank found that home prices are cyclical in the long term, suggesting that the high-fliers will continue rising over the next year or two. Similarly, in the short term, prices will continue declining in markets where they have fallen.

Goldman adds that positive developments in the labor markets of the United States and Britain, and perhaps also of Ireland and Spain, could herald recovering prices. For example, the U.S. unemployment rate peaked at the end of 2009 and housing prices there hit a low at the end of 2011. Now housing prices are rising following a drop in unemployment.

Goldman Sachs' forecast is based on U.S. real estate prices between 1975 and 2013, which show that price trends continue over the short run. In other words, if housing prices in any given year fall 10%, they might drop another 8.5% the following year. Similarly, if prices rise 15% one year they might rise 13% the next.

Opposition leader Shelly Yacimovich (Labor) said Goldman's report highlighted the housing problems under the premiership of Benjamin Netanyahu.

"The questionable honor of winning first place in rising home prices can be added to our leading the poverty and inequality rankings under the OECD index. Housings costs remain the biggest failure of the Netanyahu governments - even more so during his current term and under the leadership of Finance Minister [Yair] Lapid," she said.

"This is a severe social problem with far-reaching implications on the lives and finances of many Israelis. I call on the government to stop using the wrong solutions that fail time after time and start using solutions that have long been sitting in front of it: building public housing, applying controls on the rental market and urgently setting criteria for affordable housing."