You Can't Just Wish Housing Prices Down

Barring a catastrophe along the lines of war or deep recession, high housing prices are here to stay.

Why, exactly, should housing prices go down? Because there are people who want this to happen? Because they, and others, are shouting that there is a bubble here?

Apparently this isn’t enough.

The money seeking investments is stronger than the money available to people who want to buy homes. Barring a catastrophe like a major war and a deep recession accompanied by unemployment, there is currently nothing that will lead to a drop in housing prices.

And even if we were to have such a catastrophe, the number of people able to buy residential property would contract significantly. It isn't a good idea to consider this as a "savior scenario."

The number of homes for sale is shrinking, but it's far from depleted, according to Prof. Nathan Zussman, Bank of Israel research department director, who presented his data at a conference of real estate brokers in Jerusalem.

The weight of the housing units purchased by investors as opposed to home-buyers in the second half of 2012 began to rise relative to the first half of that year, when it accounted for 23% of sales; building starts, which reached a record for recent years in September of 2011 – about 10,000 – plummeted by about 40% last year.

But you don’t need scholarly data to comprehend just how unyielding the market is: Look at the housing market in the north of Israel after the Second Lebanon War in 2006, and then look at the market in the south of Israel after Operation Pillar of Defense in 2012. They are completely different.

The Second Lebanon War was far harsher and much more drawn-out, and in Operation Pillar of Defense the Iron Dome staved off a great deal of potential property damage. Nevertheless, the end of 2012 was marked by thousands of home sales. After the Second Lebanon War, the housing market in the north didn't wake up from its trauma until near the end of 2007.

Ultimately, the supply in Israel meets demand, the majority of which doesn’t come from speculators, and the supply is priced at levels that might be considered too high for many potential buyers. But these prices don't mark an economic failure. They mark a social one.

It takes social measures to remedy a social failure. But social measures have not been taken, and there hasn't yet been a catastrophe. So there is no reason for housing prices to fall.

Limor Edrey