Finance Minister Urges Patience as Home Prices Continue Rising

Latest data show an 0.3% increase for June-July, putting the finance minister it difficult position politically

Buildings under construction in Rishon Letzion.
Ofer Vaknin

Housing prices rose 0.3% in June-July versus May-June, the Central Bureau of Statistics reported over the weekend, but Finance Minister Moshe Kahlon insisted his program to lower prices was bearing fruit and urged buyers to remain patient.

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The data on housing prices came in the same report that showed a mild 0.1% increase in the Consumer Price Index for August, reducing the pace of inflation over the last 12 months to 1.2% from 1.4% in July and 1.3% in June.

Nevertheless, it was the third month in a row that annualized inflation was inside the government’s target range of 1%-3% annually, raising prospects that the Bank of Israel would move to hike its base lending rate after more than three years at a record low 0.1%.

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Home prices
Housing price index (January 1997 = 100)

CBS figures showed that housing prices were down 1.1% from their peak in August-September 2017. However, the declines that began in the final quarter of 2017 and first quarter of 2018 have petered out and have more recent turned into mostly gentle rises.

With prospects of early elections growing, the direction of home prices puts Kahlon in a sensitive position politically.

His Kulanu Party won big in the 2015 elections on the promise of reversing a long-term rise in housing prices that have put the dream of a home out of the reach of many families. But what looked like a victory this time a year ago has become more equivocal in recent months.

On Sunday, speaking at a ceremony turning over 376 apartments in Lod built under his flagship Machir L’Mishtaken (Buyer’s Price) program, Kahlon sought to discount the CBS data.

“We’ve come here to deliver a message to 100,000 young couples [first-time buyers] in Machir L’Mishtaken – you should wait for your house,” he said, hinting there were interest groups trying to keep prices higher. “I can’t understand why an army has been mobilized against young couples – there are a lot of people who don’t want you to have a house.”

Last week, the treasury’s chief economist took the CBS to task for what he said was erroneous reporting on home prices. Using the Case-Schiller model for estimating home prices, the treasury said prices in North Tel Aviv had actually declined 9% since the start of 2017.

The CBS declined to respond on the record to the accusations, but source said Case-Schuller was only used for metropolitan areas of one million people or more and that its sampling techniques could not be applied to small areas like North Tel Aviv.

In all events, the CBS report on Friday found that prices for the entire Tel Aviv area rose 0.5% in July-August. In Jerusalem they were up 0.4% and in the center by 0.1%. In the Haifa area they fell 0.6% and in the south by 0.1%, the CBS said.

Prices for new homes were up 0.4%, even though the figure includes Machir L’Mishtaken, a program gives land to builder at a discount on condition they pass along the savings to qualified home buyers.

Vis a vis the overall CPI, the Bank of Israel has signaled a rate hike is imminent. Governor Karnit Flug has said lending rates are not likely to rise until inflation is “entrenched” in the target range. Bank of Israel economists projects an inflation rate of 1.2% in 2018 and have forecast a rate hike in the fourth quarter to 0.25%.

Meanwhile, minutes of the central bank’s August rate-decision meeting showed that two of six monetary policy committee members supported a rate hike.

However, there is only one more meeting of the committee (October 8) before Flug is due to step down in November and no successor has been named. That makes it likely it will be the next governor to lead the move.

With reporting by Gili Melnitcki