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Introduction
In the summer of 2024, Israel’s real estate market experienced a significant rise in property prices, despite a large supply of unsold new dwellings. According to the Israeli Central Bureau of Statistics (CBS), by the end of August 2024, 69,720 new dwellings remained unsold, with the months of supply—indicating the time it would take to sell the current inventory at the current sales pace—reaching 18.4 months. Despite this oversupply, prices continued to climb. This phenomenon, occurring during the ongoing war that began on October 7th, can be attributed to a mix of speculative buying, investor psychology, and a desire to hedge against uncertainty.
However, this article argues that, following the conclusion of the war, prices in Israel’s housing market may stabilize in the short term. Over time, as inflationary pressures ease and the oversupply is absorbed, prices are expected to rise significantly. This analysis considers both the immediate and long-term impacts of the war on Israel’s housing market, offering forecasts based on historical precedents and economic factors.
June - August 2023
Units Sold
Units Sold
Haifa,
Beersheva
Jerusalem,
Ofakim
August 2023
Units Sold
Units Sold
18.4
Months supply
64'720
Units left for sale
The Impact of the War on Real Estate Prices
Why Prices Continue to Rise Despite Oversupply
Between June and August 2024, 24,360 dwellings were sold, representing a 22.4% increase compared to the same period in 2023. However, the supply of unsold new dwellings grew to 69,720 units by the end of August, indicating a significant imbalance between supply and demand. Despite this, prices have not dropped—instead, they have risen, largely due to psychological and speculative factors exacerbated by the war.
Psychological Response to Conflict: In times of war or uncertainty, real estate often becomes a “safe haven” for investors. The war that erupted on October 7th has created an environment where people view property as a stable investment compared to volatile financial markets. This trend is compounded by the perception that Israeli real estate will retain its value over time, even if the short-term outlook is uncertain.
Speculative Buying: Many buyers, particularly investors, are speculating that prices will continue to rise due to limited land availability and high demand in central urban areas like Tel Aviv, Jerusalem, and Haifa. These investors are not necessarily driven by the need for immediate housing, but by the expectation of future appreciation, even in the face of high interest rates.
High Interest Rates and Currency Stability: The Israeli government has maintained a strict monetary policy, keeping interest rates high to control inflation and stabilize the currency. While this has increased borrowing costs, it has also kept inflation in check, making property an attractive long-term investment. Many buyers view real estate as a hedge against future inflation and uncertainty, driving demand despite the high cost of financing.
The Path to Price Stabilization Post-War
As the war continues, economic pressures, including the rising cost of construction materials and disruption in supply chains, have contributed to the rise in property prices. However, after the war, several factors could lead to a stabilization of prices in the short term:
Easing of Inflationary Pressures
Historically, conflicts often lead to short-term inflation spikes, particularly in the construction sector. During the war, supply chains for construction materials are disrupted, and costs rise as resources are diverted to defense needs. This has been the case in Israel, where building costs have increased, contributing to rising property prices despite an oversupply of homes.
Once the conflict ends, however, supply chains will likely stabilize, and inflationary pressures will ease. This will allow developers to build at lower costs, which could lead to a temporary stabilization in property prices as the market adjusts to lower input costs. As inflation pressures ease, buyers may become more cautious, particularly if the high interest rates persist.
Short-Term Stabilization of Demand
In the immediate aftermath of the war, demand for new housing may slow as potential buyers wait for market conditions to stabilize. During periods of uncertainty, especially after a conflict, buyers often take a “wait and see” approach. This could lead to a temporary softening of demand, helping to stabilize prices as the market absorbs the remaining unsold inventory.
However, this stabilization is likely to be short-lived, as Israel’s strong economic fundamentals and high demand for housing, particularly in urban centers, will quickly restore demand. The underlying scarcity of land and housing in key areas such as Tel Aviv and Jerusalem will continue to support price growth in the long term.
Apartments Sold by District
Mar-May 2024 Compared to Dec 2023-Feb 2024
Region | New Apartments | Second-Hand Apartments | ||
---|---|---|---|---|
Absolute Numbers June-August 2024 |
Percentage Change Compared to the Previous Three Months |
Absolute Numbers June-August 2024 |
Percentage Change Compared to the Previous Three Months |
|
Total | 10,870 | -1.6 | 13,490 | 10.2 |
Jerusalem | 1,071 | -25.0 | 1,373 | 19.5 |
North | 1,314 | 5.5 | 1,675 | 22.4 |
Haifa | 1,141 | -20.0 | 2,320 | 2.7 |
Center | 2,472 | -17.4 | 3,164 | 7.6 |
Tel Aviv | 2,186 | 0.9 | 1,803 | 6.2 |
South | 2,568 | 13.4 | 2,685 | 10.0 |
Yehuda & Shomron | 104 | 16.9 | 468 | 23.5 |
Long-Term Forecast: A Significant Price Increase After Stabilization
Despite the potential short-term stabilization, prices are expected to rise significantly over the long term once the market absorbs the current supply. Several factors support this forecast:
Absorption of the Current Supply
As the unsold inventory is gradually absorbed, supply constraints will start to bite again, particularly in high-demand areas. Israel’s growing population, combined with limited land for development in key urban areas, will put upward pressure on prices once the existing supply is depleted.
In high-demand regions like Tel Aviv, Jerusalem, and Haifa, where land is scarce and construction is slow, developers may not be able to keep up with demand in the post-war recovery phase. As a result, once the excess supply is absorbed, prices are likely to rise significantly, driven by renewed demand and limited availability.
International Comparisons: Post-Conflict Recovery in Real Estate Markets
A comparison with other countries that have experienced conflict reveals similar trends. For example, in post-war Lebanon, property prices in urban centers such as Beirut rose significantly after the end of hostilities, despite an initial stabilization period. In Croatia, following the end of the Balkan conflicts in the 1990s, property prices surged as the country rebuilt its economy and demand for housing in urban centers resumed.
In Israel, a similar pattern is likely to emerge. Once the war ends and economic recovery begins, demand for housing in central locations will increase, driving up prices in key markets.
Investor Confidence in Long-Term Growth
Israel’s strong economic fundamentals, coupled with its strategic importance and resilient population, will attract both domestic and international investors in the post-war period. Investors are likely to re-enter the market with renewed confidence, driving demand for high-quality housing and pushing prices upward.
Moreover, with interest rates expected to remain high in the near term, real estate will continue to serve as a hedge against inflation, further supporting price growth. As investor sentiment improves and the post-war economy stabilizes, housing prices will reflect the strong underlying demand for property.
Conclusion
The Israeli real estate market has experienced a paradox during the ongoing war, with property prices rising despite an oversupply of unsold dwellings. However, this trend is likely to stabilize in the short term as inflationary pressures ease and supply begins to be absorbed. Post-war, prices are expected to rise significantly, driven by the absorption of excess supply, renewed demand, and investor confidence in Israel’s long-term growth prospects.
In the long term, Israel’s real estate market will continue to be shaped by the fundamental dynamics of supply and demand, with high demand in urban centers ensuring that prices remain elevated. While the war has introduced short-term uncertainty, the underlying strength of the market will drive significant price growth once peace and stability are restored.
References
Israeli Central Bureau of Statistics, Real Estate Transactions – Dwellings in June-August 2024 Report, October 10, 2024.
Post-conflict recovery in real estate markets: Examples from Lebanon and Croatia.
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