House prices will continue to rise - and there is blame for this situation

The apartments are the product whose prices have risen at the highest rate in the last year. Part of the blame lies in the low interest rate that raises demand. Another part is in the war declared by the Minister of Finance who could bring them to decline

House prices will continue to rise - and there is blame for this situation

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Last year we closed with a record amount of mortgages. During the year, households took mortgages totaling NIS 67.7 billion. Not surprisingly, this comes along with an increase in the price of apartments - when there is demand, there is also an increase in prices. In 2019, the price increase was only 3.4%, which is less than it was in 2010, but still much faster than the price increase of all other products. The general price index, which does not include housing prices (but also includes rentals), rose only 0.6% last year. That is, despite all the government's efforts to halt house prices, the fastest-growing product in the country is still ... apartments.

In the near future, house prices are likely to rise further, and this is happening due to a number of reasons. The first is the interest rate. In 2018, the average mortgage rate was 3.9%. In 2019, the average interest rate dropped to 3.7%. This explains quite a bit of the fact that the amount of mortgages increased between 2018 and 2019. It also explains why the rate of mortgage lending has increased mainly in the second half of the year, at a time when interest rates have dropped more.

By 2020, interest rates will probably fall even further. In the US, there is strong pressure on the central bank to lower interest rates, and the bank doesn't seem to be able to resist this pressure for a long time, even though its heads know that any further drop in interest rates is risky. Even years, and being blamed for an immediate collapse of the stock exchange, central bank executives seem to prefer the first option. And as long as interest rates are low, demand for apartments will remain high.

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Decrease in the amount of construction

The second reason is the cost to the buyer. Price per user, in part, resulted in two negative results. The first is that contractors found it difficult to find projects that were not cost-effective to the client, so many contractors preferred not to build anything. The result is that the number of beginnings has been declining since 2018. And as construction starts diminish and demand for apartments does not decline, it is difficult to bring down prices.

The second result is that apartment enhancers have found that the price per dwelling reduces the choice of apartments they can purchase. Because if most new apartments are at a cost to the homeowner, apartment enhancers must buy second-hand apartments. This creates double pressure for price increases: On the one hand, apartment owners who want to sell their apartments see demand for their apartments rising, which causes them to raise prices. At the same time, an apartment enhancer who wants to sell his apartment knows that the price of the apartment he wants to buy is also on the rise, so he has to raise the price of his apartment even more. Either way, the result is that the price of second-hand apartments is rising.

So the mortgage market is likely to have a good year in 2020. Housing enhancers and first-time home buyers, on the other hand, will have to face a market of rising prices. They can take comfort in the fact that the price rents will go up as well. This is what happens when a finance minister decides that contractors and investors must fight, forgetting that the contractors are responsible for the construction of apartments, and the investors are responsible for making apartments available for rent.

Dr. Avihay Snir - Netanya Academic College and Infinity Investment House