Israeli home prices rose 87.1% from 2008 through 2014, the third-steepest increase among 26 countries, The Economist magazine reported over the weekend. Nevertheless, it said, Israelis homes are not particularly overvalued.
Only Brazil and Hong Kong saw a sharper rise in home prices during the those years, a period that for many countries was marked by the worst recession since the 1930s – including a nosedive in home prices — and a struggle to recover.
Like Israel, Brazil and Hong Kong never suffered a sharp drop in home prices. In Brazil prices rose 200.1% in the last seven years and 119.4% in Hong Kong. By comparison the next three countries with the sharpest price rises – Germany, Australia and Canada – had increases of about 30-33%.
More recently, Israel’s pace has trended closer to the average. Of the 19 countries where home prices rose in 2014, the median pace of gains was 5.2% after inflation, the same pace as Israel’s. In Ireland, which suffered a severe price drop, they rose 16.2% in 2014, the fastest of the 26 countries surveyed, The Economist said.
As the magazine noted, all over the world the real estate markets have been powered higher by record low interest rates. Central bankers are relying on so-called macroprudential policies, such as stringent lending criteria for banks, to rein in housing prices.
The Bank of Israel’s base lending rate is a record low 0.1%, and there has been persistent talk that it will lower the rate below zero. In the meantime, the bank has imposed a series of restrictions on mortgages in an effort to discourage excessive borrowing.
By The Economist’s reckoning, the central bank has more or less succeeded. Measured against rents, it says Israeli home prices were just 10% overvalued last year. By comparison, in seven countries, that measure showed houses were overvalued by 25% or more.
On the magazine’s other measure, home prices against disposable income per person, there were no data for Israel. But in many other countries where there were comparative data, there was often a big gap between prices versus income and prices versus rent. For instance, in Canada, where prices rose 29.5% in the seven years, homes were 89% overvalued against rent but only 35% versus income.