After real estate prices soared in the last year at an unimaginable rate of more than 20%, the chief economists of the major banks are rather optimistic about the continuation. According to the forecast of the three major banks, Hapoalim, Leumi and Discount, in the new year not only will the rate of increase moderate but there may be decreases Prices. Together with the marketing data of the Israel Land Authority (see article above), which will be ripe in a few years for new apartments, there are good reasons for cautious optimism.
"The rate of increase in apartment prices is expected to moderate significantly in the coming months, and there may also be price decreases in 2023," say Leumi's capital markets division, headed by Dr. Gil Michael Bafman. Leumi notes that the cumulative annual volume of construction starts as of the end of the third quarter amounted to About 69.6 thousand apartments - high in relation to the annual housing needs of the economy, which are 55-60 thousand apartments.
"The volume of construction starts is on the rise, and the volume of construction completions is recovering from the negative effects of the corona crisis. Simultaneously with the increase in the supply of residential real estate, the demand for the purchase of apartments is on a downward trend from the beginning of 2022. This is, in part, against the background of the change in the macro environment Economically, with an emphasis on the rapid increase in the Bank of Israel's interest rate and the acceleration of inflation, as well as the reduction in the scope of activity of real estate investors following the increase in the purchase tax at the end of 2021."
Chinese construction workers in Ramat Gan (archive), photo: Moshe Shay
It was also noted that "the continuation of the process of raising the interest rate, which is expected to reach a level of about 4% at the beginning of 2023, should increase and slow down the rate of transactions for the purchase of housing. This in combination with the expected slowdown in economic activity in the economy. Because the supply of new apartments is growing faster than the rate at which apartments are sold, there was an increase in the inventory of unsold apartments. We estimate that the rate of increase in apartment prices is expected to moderate significantly in the coming months, and there may also be price decreases in 2023."
"Slight decrease in 2023"
We received a similar forecast from Bank Hapoalim.
According to the bank's financial markets strategist, Modi Shafferer, "We estimate that the sharp drop in demand levels, as reflected in the mortgage data, is in addition to the increase in supply (a sharp increase in the volume of construction starts and permits and the increase in the stock of new apartments for sale) and the very sharp increase in interest rates on mortgages - will lead to stopping the increase and even to a slight decrease."
Shafferer provided another interesting rationale for his forecast, which is the sharp increase in the number of immigrants compared to the increase in the number of inherited apartments: "On the side of the factors supporting housing prices, we note the sharp increase in the number of immigrants to Israel in the first ten months of 2022, mainly from Russia and Ukraine. On the other hand, in the first five months of 2022, there was a sharp increase in the amount of apartments that were inherited (Ministry of Finance data), although the sales tax data shows that most of the apartments are directed to the rental market."
Discount Bank in a move against the apparent government policy, photo: Yehoshua Yosef
"moderate drop in prices"
Discount also believes that in the new year the trends in the real estate market may reverse.
Nira Shamir, Chief Economist of Bank Discount, told us that "in October there was a sharp drop in the sale of new apartments. We continue to estimate that in 2023 we will see a moderate drop in prices."
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