Bad News for Israel's Finance Minister: Home Prices Rise Ever So Slightly

Kahlon has made bringing down home prices his key policy goal through measures like new and higher taxes on property investors and his Machir L’Mishtaken program to sell discounted land to contractors

File photo- Kahlon speaks during a debate hosted by the Israel Women's Network in Tel Aviv on February 24, 2015
AP

Home prices rose a relatively moderate 0.4% in September-October versus the previous two months, the Central Bureau of Statistics reported on Wednesday, but even a small increase is bad news for Finance Minister Moshe Kahlon.

The latest increase meant that the housing price index was up 4.2% in the 12 months. Moreover, the average price of a home nationwide rose in the third quarter by 0.5% to 1.473 million shekels ($420,000) after dipping in the second quarter from a record high 1.49 million the first.

Jerusalem led the third-quarter price gains, with a 2.9% increase in the third quarter from the second. In the Northern District and Krayot they were up 2.7% and in Tel Aviv by 2.3%, But the in Central District prices fell 2.1%, 0.3% in the south and 2% in the Sharon region.

Kahlon has made bringing down home prices his key policy goal through measures like new and higher taxes on property investors and his Machir L’Mishtaken program to sell discounted land to contractors.

The treasury had hoped that between slowing sales of homes and the impact of the Machir L’Mishtaken lotteries awarding their right to buy a home, would lead to stable or declining housing prices. The government conducted two lotteries in the third quarter, but they appear to have had little or no impact.

Still rising Housing price index

Meanwhile, rental prices showed an 0.1% increase in October, the bureau said, bringing the increase since the start of 2017 to 2.5%, reversing a decline in the second half of 2016. Economist speculate that rental prices are turning higher because investors are sellings home they were renting, constricting the supply of rental housing.

Meanwhile, the bureau reported that the overall consumer price index rose 0.3% in October, slightly ahead of the 0.2% economists had forecast. Since the start of the year, the CPI has risen 0.6% and in the 12 months through October it was up 0.2%.

“Looking ahead, it appears that deflation is behind us, and we expect moderate inflation of 0.6%-0.7% in the year ahead, influenced by wage pressures (an upward adjustment to the minimum wage), further rises in rental prices and moderate increases in commodities prices,” said Jonathan Katz, an economist at Leader Capital Markets.

The forces that had been causing the shekel to appreciate have weakened and they had been a major factor in the low inflation of recent years, Katz added.

In spite of the gentle rise in inflation now underway, he said he did not expect any increase in the Bank of Israel interest rate until the CPI reaches the government’s target range of 1% to 3% annually. He said that was unlikely to happen before the middle of 2019.

The central bank’s base rate has been at a record low 0.1% since early 2015. Its economists expect that the rate will remain there for the next year, then rise to 15 basis points in the fourth quarter to end 2018 at 0.25%.

The biggest price increases in October were for apparel and shoes, which climbed 6.1%, and fresh vegetables, which rose 3.2%. Against that, fresh fruit prices fell 1.1% and furniture and household appliance prices by 6%.