The Correction Paused. Is This Israel’s Housing Bottom?
Fresh CBS data shows +0.8% monthly gain—the first uptick since February. But 0.4% annual growth tells a different story. We break down what changed, what didn’t, and what it means for your dollars.
Three days ago, we published an analysis declaring Israel’s housing market “the most buyer-friendly environment in over a decade.” Yesterday, the Central Bureau of Statistics released January’s price data, and it complicates that narrative—but does not invalidate it. Dwelling prices rose 0.8% in the Nov-Dec 2025 period, breaking an eight-month streak of consecutive declines. Tel Aviv surged 2.0% monthly. But zoom out to the annual view, and the picture remains decidedly fragile: prices are up just 0.4% year-over-year, effectively flat after inflation. This is not a crash. This is not a recovery. This is a market attempting to find its floor—and the floor is still uncertain.
The January Data: What Actually Changed
The monthly uptick is statistically significant—the first positive movement since the market peaked in February 2025. But context is everything. The 0.8% gain follows eight consecutive months of declines totaling approximately 2.7%. We are not “back to normal”—we are bouncing off a local bottom. The question is whether this bounce has legs or whether it is a technical consolidation before another leg down.
The Regional Fracture Deepens
The national average masks dramatic regional divergence. This is not a unified market—it is three separate markets operating under different dynamics:
Market 1: Government-Subsidized Periphery Artificial Strength
Jerusalem (+9.6% annually) and Northern district (+4.8%) are propped up by government housing subsidies. As we noted in our February 12 analysis, 29.9% of all new apartment sales in 2025 were subsidized. These programs create artificial demand that evaporates when subsidies taper. Jerusalem’s 10,230 unsold units—the highest inventory in the country—reveal the underlying weakness. When subsidies end, these markets collapse.
Market 2: Core Investor Cities Still Correcting
Tel Aviv (−1.9% annually) and Central district (−3.1%) are the markets that matter for foreign investors and domestic wealth. These are correction markets, not recovery markets. The monthly +2.0% Tel Aviv bounce is encouraging but insufficient to call a trend reversal. The 29.2 months of unsold inventory nationally—concentrated heavily in Tel Aviv and Jerusalem—remains the dominant supply-side fact.
Market 3: Secondary Cities Treading Water
Haifa (+0.7%) and Southern (+1.4%) are effectively flat. These markets move slowly, correct slowly, and recover slowly. For yield-oriented investors, Haifa remains the best risk-adjusted entry point in Israel—40% cheaper than Tel Aviv on a per-square-meter basis with superior rental yields.
The Q4 2025 Average Prices: Updated
The CBS released Q4 2025 average transaction prices (unadjusted for quality). National average: NIS 2,362,900 (up 1.8% from Q3, up 0.5% annually). Tel Aviv average: NIS 3,360,600 (down 1.0% annually). These are the nominal prices buyers are actually paying—quality adjustments aside.
| City | Q4 2025 Avg Price (NIS) | Q4 2024 Avg Price (NIS) | Annual Change |
|---|---|---|---|
| Tel Aviv | 4,166,000 | 4,207,500 | −1.0% |
| Herzliya | 3,974,900 | 3,998,200 | −0.6% |
| Jerusalem | 3,335,700 | 3,088,600 | +8.0% |
| Ramat Gan | 3,285,300 | 3,297,100 | −0.4% |
| Haifa | 1,836,500 | 1,779,400 | +3.2% |
| Ashkelon | 1,720,000 | 1,655,300 | +3.9% |
| Beer Sheva | 1,283,800 | 1,258,700 | +2.0% |
The USD/ILS Reality Check
We need to address the elephant in the room: the shekel. At USD/ILS ~3.08, the currency remains approximately 13% stronger than it was a year ago. This is the single biggest determinant of whether USD buyers are getting value—and the data is unambiguous.
| Property Type | Q4 2024 (NIS) | Q4 2025 (NIS) | NIS Change | Q4 2024 (USD at 3.55) | Q4 2025 (USD at 3.08) | USD Change |
|---|---|---|---|---|---|---|
| National Average | 2,350,900 | 2,362,900 | +0.5% | $662,200 | $767,500 | +15.9% |
| Tel Aviv Average | 4,207,500 | 4,166,000 | −1.0% | $1,185,200 | $1,352,600 | +14.1% |
| Jerusalem Average | 3,088,600 | 3,335,700 | +8.0% | $869,900 | $1,083,000 | +24.5% |
| Haifa Average | 1,779,400 | 1,836,500 | +3.2% | $501,200 | $596,300 | +19.0% |
The brutal truth: For USD buyers, Israeli real estate is 15-25% more expensive than it was a year ago at the market peak. The shekel appreciation has not just eroded your discount—it has reversed it entirely. Even Tel Aviv, where NIS prices fell 1.0%, is now 14% more expensive in dollar terms.
This is why the “crash vs. recovery” debate misses the point. For USD buyers, the relevant question is not “are Israeli prices falling?” but “is the shekel going to weaken?” If USD/ILS returns to 3.30-3.50 by late 2026 (our base case), you will get genuine discounts. If the shekel stays at 3.00-3.10, you are buying at peak prices regardless of local NIS movements.
What’s Driving the Uptick?
Three factors explain the January bounce:
1. Interest rate cuts. The Bank of Israel cut rates to 4.0% in January and projects 3.5% by Q4 2026. A NIS 1.5M mortgage at 4.0% vs 5.0% saves approximately NIS 500/month—meaningful for middle-income buyers at the margin.
2. Seasonal stabilization. Q4 is traditionally the strongest quarter for Israeli real estate (families settle before the school year). The Sept-Oct declines may have been overshooting; the Nov-Dec bounce could be mean reversion.
3. Buyer exhaustion. After eight months of declines, some buyers who were waiting for “the bottom” decided the bottom was here. This creates a self-fulfilling stabilization—until it doesn’t.
What Hasn’t Changed
The fundamental supply-demand imbalance remains intact:
- 86,090 unsold new units = 29.2 months of supply (normal is 12-18 months)
- 81,000 new construction starts through September 2025 will hit the market in 2026-2028
- NIS 4+ billion in mortgage arrears at record levels—forced selling has not yet materialized
- Fiscal deficit at 4.8% of GDP—limits government’s ability to stimulate further
- Geopolitical fragility—ceasefire holding but one major incident freezes the market
The 0.8% monthly uptick does not resolve any of these structural headwinds. It pauses them. The difference matters.
Three Scenarios for 2026
Scenario 1: U-Shaped Bottom (50% probability)
Prices stabilize in the 0% to +2% annual range through mid-2026. The BoI cuts rates to 3.5% by Q4, stimulating modest demand. Inventory begins clearing slowly (reaching 18-24 months supply by year-end). The shekel weakens to 3.20-3.30 as rate cuts accumulate, giving USD buyers a genuine entry window in Q3-Q4 2026. This is the “soft landing” scenario—no crash, no V-shaped recovery, just a grinding multi-quarter adjustment.
Scenario 2: Double Dip (30% probability)
The Jan uptick proves temporary. By March-April 2026, as new supply hits the market and mortgage arrears force distressed selling, prices resume declining. The cumulative correction reaches 6-8% from the February 2025 peak (as Phoenix economists projected). Developers begin offering 10-15% discounts to clear inventory. This creates the best buying opportunity for USD investors, particularly if the shekel simultaneously weakens. Bottom formation occurs Q3-Q4 2026.
Scenario 3: V-Shaped Recovery (20% probability)
Rate cuts stimulate faster-than-expected demand. Geopolitical stability holds. Tech sector growth accelerates (5%+ GDP in 2026). Inventory absorbs quickly. Prices resume growing 3-5% annually by Q2 2026. The shekel strengthens further to 2.90-3.00. USD buyers who waited miss the bottom entirely. This is the bull case—low probability but high regret if it materializes.
The Updated Investment Thesis
For USD Buyers: The Waiting Game Continues
The January data does not change our core recommendation: wait until Q3-Q4 2026. Here is why:
The price correction is incomplete. A single month of +0.8% does not reverse eight months of declines. The 29.2-month inventory overhang guarantees continued downward pressure on prices. Developers will become more desperate as 2026 progresses.
The shekel is the bigger variable. Even if NIS prices stabilize, you need currency weakness to get genuine USD-denominated value. The BoI’s rate-cutting cycle should weaken the shekel over the next 6-9 months. Patience here could save you 10-15% in conversion costs.
Distressed selling has not started. NIS 4 billion in mortgage arrears will eventually force sellers into the market. That creates the best buying opportunities—motivated sellers with time pressure.
The optimal strategy:
- Identify 3-5 target properties now (Tel Aviv secondary market, Haifa, select Central district)
- Build relationships with developers who have 20+ unsold units
- Monitor USD/ILS weekly—be ready to move if the shekel hits 3.25+
- Watch for geopolitical triggers (ceasefire breakdown = buying opportunity if you have conviction it will hold long-term)
- Plan to close in Q3-Q4 2026 when rate cuts are mature and inventory has cleared further
For NIS Buyers: Selective Buying Now Is Reasonable
If you are paying in shekels, the calculus is different. The 0.4% annual price growth is below inflation (2.4%), meaning real prices are declining. The rate-cutting cycle improves affordability. If you find a property you love at a negotiated discount (10%+ off comparable sales), buying now is defensible—particularly in Tel Aviv’s secondary market where motivated sellers exist.
Avoid: New construction in Jerusalem (10,230 unsold units). Government-subsidized peripheral cities (artificial demand). Any property priced above recent comparables without compelling unique attributes.
The Bottom Line
Is this Israel’s housing bottom? Possibly—but probably not. The January uptick is more likely a technical bounce in a U-shaped bottoming process that will take 12-24 months to complete. The fundamentals have not changed: record inventory, incoming supply, currency headwinds for USD buyers, and unresolved fiscal and geopolitical risks.
The market is not crashing. But it is also not recovering. It is adjusting—and that adjustment is not finished.
For USD buyers, the message is clear: the January data is noise, not signal. The signal will come when (1) inventory falls below 20 months of supply, (2) the shekel weakens to 3.20+, and (3) we see three consecutive months of positive price momentum. None of those conditions exist today.
Stay patient. Stay selective. And remember: in real estate, being early looks identical to being wrong—until it doesn’t.
Disclaimer: This analysis is for informational purposes only and does not constitute investment, financial, or legal advice. Real estate transactions in Israel involve complex legal, tax, and regulatory considerations. Consult qualified professionals before making any investment decisions. Past performance is not indicative of future results. Currency exchange rates are subject to significant volatility.
