The Shekel Paradox and Your Tel Aviv Property Decision

Why Understanding Currency Dynamics Matters Now

If you’re considering buying property in Tel Aviv, you’re facing a market dynamic I haven’t seen in a decade of doing this work. The shekel has strengthened to ₪3.14/$ despite the Bank of Israel cutting interest rates—the opposite of what should happen according to standard monetary theory. Meanwhile, Tel Aviv’s property inventory has finally started declining after hitting record highs, and prices in shekel terms are showing the first signs of stabilization after months of correction.

The question you’re asking is the right one: if shekel property prices rise again while the shekel weakens, could those two forces offset each other in dollar terms?

The short answer is yes, but the timing and magnitude matter enormously. Let me explain what’s actually happening and what it means for your decision.

The Fundamental Currency Puzzle

The shekel appreciated roughly 12% against the dollar during 2025, reaching ₪3.14/$—its strongest level in four years. This happened while the Bank of Israel cut rates from 4.5% to 4% in two moves.

This breaks the basic rules. When central banks cut rates, currencies typically weaken as capital flows toward higher yields elsewhere. The shekel did the opposite.

Why this matters for you: Every dollar you hold now buys 17% fewer shekels than it did a year ago. A ₪15 million Tel Aviv apartment that would have cost you $3.95 million at ₪3.80/$ now costs $4.78 million at ₪3.14/$. The property’s shekel price hasn’t changed—your dollar purchasing power has deteriorated significantly.

What’s Driving Shekel Strength Despite Rate Cuts

Four structural forces are overwhelming the interest rate effect:

1. Geopolitical Risk Premium Collapse

Israel’s credit default swap spreads compressed dramatically following the Iran campaign and Gaza ceasefire. S&P upgraded Israel’s outlook from negative to stable. Markets no longer demand the same risk premium for holding Israeli assets.

When country risk declines, currencies strengthen mechanically. Investors who previously required extra compensation for Israeli exposure no longer need that premium. The shekel appreciates to reflect improved creditworthiness, regardless of modest interest rate adjustments.

The magnitude is significant—Israeli CDS spreads fell to near pre-war levels. That’s sustained buying pressure on the shekel that swamps 50 basis points of rate cuts.

2. Current Account Transformation via Natural Gas

Israel shifted from energy importer to exporter. Natural gas exports to Egypt and Jordan reached 12 billion cubic meters in 2024, generating approximately $2 billion in state revenues with projections reaching $2.7 billion.

These are dollar-denominated contracts. The revenues flow into Israel, get converted to shekels for domestic use, taxes, and operations. That’s structural, ongoing buying pressure on the shekel.

Add tech exports—roughly 50% of total exports and 14% of GDP—plus defense exports that surged during the war, and you have sustained hard currency inflows requiring shekel conversion.

Countries running persistent current account surpluses see their currencies appreciate over time. Israel’s energy transformation represents a permanent shift in this dynamic.

3. Institutional Portfolio Rebalancing

The traditional correlation between the S&P 500 and the shekel has broken down. For years, a 1% rise in the S&P meant roughly 0.3% shekel appreciation as Israeli institutions hedged their dollar exposure. That relationship no longer holds—the shekel has strengthened far more than US equity performance would predict.

Israeli institutions appear to be reducing dollar concentration in favor of broader global diversification. The correlation with the MSCI All Country World Index has strengthened while S&P correlation has weakened.

Even modest portfolio shifts—say from 60% to 55% dollar weighting—create significant currency flows when you’re discussing $500+ billion in institutional assets. And there may be new buyers in the shekel market beyond traditional institutional hedgers—foreign institutions, Israeli corporations, or other players accumulating shekels.

4. Global Dollar Weakness

The shekel’s strength isn’t purely about Israeli factors. The dollar has weakened globally, with the euro appreciating 12% against the dollar over the past year. Trump administration policies appear designed to weaken the dollar to reduce trade deficits.

Against the euro, the shekel has strengthened but less dramatically. Much of what appears as shekel strength is actually dollar weakness, with Israel’s structural positives reinforcing rather than offsetting the trend.

The Tel Aviv Property Market Reality

While you’re losing purchasing power due to currency, the property market itself has shifted in ways that create opportunity.

Inventory Peak Has Passed

The unsold apartment inventory reached 83,360 units in late 2025—representing 28.4 months of supply at current sales rates. That was a record. But the number has started declining, dropping to 83,920 in September before falling further in Q4.

More importantly, transaction velocity picked up. Between July and September 2025, 23,330 homes sold nationwide—15.4% more than the previous quarter. In Tel Aviv specifically, new home sales surged 53% quarter-over-quarter, driven by large releases at Sde Dov and other projects.

The massive supply overhang that suppressed prices is beginning to clear, particularly in prime central locations where inventory was always tighter.

Price Stabilization in Shekel Terms

After eight consecutive months of price declines totaling 2.6% cumulatively, the Tel Aviv housing price index stopped falling in late 2025. Prices stabilized, and in some prime neighborhoods began rising modestly in early 2026.

This isn’t uniform—peripheral areas and secondary luxury segments remain weak. But in Old North, City Center, Rothschild, and beachfront locations, the correction appears complete. Properties that languished on market for 12+ months are finally transacting.

Average Tel Aviv prices currently sit around ₪59,200-62,200 per square meter across the city, with prime neighborhoods at ₪70,000-150,000/m² depending on building quality and exact location. These shekel prices have stabilized after 7-13% corrections in some segments.

The Bifurcation Continues

The market remains split between ultra-prime and everything else.

Ultra-prime (beachfront, Rothschild, new luxury towers with hotel amenities): This segment barely corrected and in some cases continued appreciating. Foreign buyers and cash-rich Israelis are insensitive to interest rates and local economic concerns. Projects like Rothschild 10 with Six Senses hotel integration trade at ₪160,000-170,000/m².

Standard luxury (₪10-20 million properties requiring mortgages): Still largely frozen. This depends on local tech wealth and dual-income professional households, both of which remain cautious. Interest rates at 4% aren’t cheap enough to overcome uncertainty.

Prime established neighborhoods: This is where the action is. Old North, City Center, and beachfront properties in quality buildings are finding buyers again after the inventory cleared and prices adjusted. Negotiating leverage still favors buyers, but sellers are no longer panicking.

The Currency-Property Price Offset Question

Now to your core question: if shekel property prices rise while the shekel weakens, could they offset each other?

The answer is yes, and this dynamic has played out in previous cycles. But you need to understand the timing and magnitude to evaluate whether it creates opportunity.

The Mechanics

Let’s model this with a realistic example. Say you’re considering a ₪15 million apartment in Old North:

Today (January 2026):

• Shekel price: ₪15,000,000
• Exchange rate: ₪3.14/$
• Dollar cost: $4,777,000

Scenario 1: Shekel weakens to ₪3.50/$ over 18-24 months, property appreciates 8% in shekel terms

• Shekel price: ₪16,200,000 (8% appreciation)
• Exchange rate: ₪3.50/$
• Dollar cost: $4,628,571
• You saved $148,000 in dollar terms despite shekel price rising

Scenario 2: Shekel weakens to ₪3.50/$, property price flat in shekels

• Shekel price: ₪15,000,000 (no change)
• Exchange rate: ₪3.50/$
• Dollar cost: $4,285,714
• You saved $491,000 in dollar terms through currency alone

Scenario 3: Shekel stays at ₪3.14/$, property appreciates 8% in shekels

• Shekel price: ₪16,200,000 (8% appreciation)
• Exchange rate: ₪3.14/$
• Dollar cost: $5,159,235
• You lost $382,000 in dollar terms—currency headwind overwhelms property appreciation

The math is straightforward: shekel depreciation benefits you more than shekel property appreciation hurts you when you’re a dollar buyer. But timing is everything.

How Likely Is Shekel Weakening?

Based on historical patterns, economic fundamentals, and current positioning, I assign the following probabilities over the next 18-24 months:

Range-bound (₪3.00-3.30/$): 40% probability The shekel trades in a relatively stable range as appreciation pressures balance periodic risk-off episodes. The Bank of Israel eventually begins modest intervention. This reflects a new equilibrium incorporating structural improvements while acknowledging persistent volatility.

Mean reversion (₪3.30-3.60/$): 35% probability
The shekel weakens back toward historical averages as risk premium compression reverses partially, global dollar strengthens, or regional geopolitical situation deteriorates. Real exchange rates tend to revert to long-run levels, and current strength may reflect overshooting.

Continued appreciation (₪2.80-3.10/$): 20% probability The shekel strengthens further if Abraham Accords expand, Saudi normalization occurs, European gas contracts materialize, or dollar weakness accelerates. Requires multiple positives aligning—possible but demanding.

Sharp reversal (₪3.80-4.20/$): 5% probability Major geopolitical deterioration or global financial crisis drives sharp depreciation. Low probability but non-zero given regional dynamics.

Base case: The shekel more likely weakens moderately to ₪3.30-3.50/$ than strengthens further. The structural forces supporting it are real, but currencies rarely move in one direction indefinitely without correcting.

How Likely Is Shekel Property Price Appreciation?

For prime Tel Aviv locations, the outlook has shifted from negative to neutral-to-positive:

2026 forecast: Most analysts predict 0-3% appreciation in shekel terms for prime Tel Aviv, with some segments potentially reaching 3-7% if demand recovers strongly. This follows the 2-7% correction that already occurred.

Drivers supporting appreciation:

• Inventory overhang clearing (down from 35 months to 28 months and falling)
• Transaction velocity increasing (up 15% quarter-over-quarter)
• Construction labor shortages limiting new supply additions
• Infrastructure investments (light rail, Sde Dov redevelopment) improving neighborhoods
• Limited developable land in prime areas creating structural scarcity
• Potential immigration acceleration if regional stability continues

Headwinds:

• Interest rates still restrictive at 4%, suppressing domestic buying power
• Economic growth forecast at 4.6% for 2026—solid but not exceptional
• Ongoing geopolitical uncertainty despite recent improvements
• Government fiscal constraints limiting stimulative policies

Realistic expectation: Prime Tel Aviv properties appreciate 3-5% in shekel terms over the next 12-18 months as the market normalizes, with ultra-prime potentially doing better and secondary luxury remaining flat.

The Strategic Question: Is Now the Right Time?

Let me be direct about what the data suggests.

The Case for Waiting

If you believe the shekel will weaken back toward ₪3.40-3.60/$ over the next 12-18 months, waiting could save you 8-13% in dollar terms even if shekel prices rise modestly. At $5 million, that’s $400,000-650,000.

The currency headwind is real and substantial. You’re buying at the worst exchange rate in four years for dollar holders.

The Case for Acting Now

Three factors argue against waiting:

1. Inventory is clearing faster than expected. The properties you want—prime locations, quality buildings, proper specifications—are getting absorbed. The supply glut was primarily in peripheral locations and off-plan projects. Prime existing inventory was always tighter.

I’m seeing this in real-time. Six months ago, a well-located Old North apartment would sit for 9-12 months. Now they’re moving in 3-4 months with multiple interested parties. The negotiating leverage that existed in mid-2025 is diminishing.

2. If shekel prices stabilize and begin rising, you lose the entry point. The 7-13% corrections in certain segments created a price window. If you wait for the perfect currency moment while shekel prices rise 5-8%, you’ve neutralized the currency benefit.

3. The offset dynamic works in both directions. If you’re wrong about currency direction and the shekel strengthens further to ₪2.90/$, but property prices rise 6% in shekels, you’ve compounded your losses by waiting. The cost of being wrong about timing is higher than the benefit of being right.

The Pragmatic Middle Path

Rather than trying to time both currency and property markets perfectly, consider:

Buy now in prime locations with negotiating discipline. The 2025 correction created realistic pricing. Properties that were absurdly overpriced at ₪90,000/m² are now at ₪75,000-80,000/m². That correction has largely run its course. But individual sellers who need liquidity will still negotiate—you just need to be selective.

Structure for currency optionality. If you can arrange shekel financing rather than converting dollars, you maintain optionality. Shekel mortgage rates around 4.8-6.5% aren’t cheap, but they eliminate conversion risk at today’s unfavorable rates. You can convert dollars gradually as rates improve or use rental income in shekels to service the loan.

Focus on scarcity, not commodity. In ultra-prime locations where inventory is genuinely limited, timing matters less than securing the asset. A beachfront apartment with unobstructed sea views or a Bauhaus building on Rothschild—these aren’t interchangeable commodities. If you find the right one, currency fluctuations are second-order considerations.

Buy for duration, not speculation. If your time horizon is 7-10+ years, the currency volatility smooths out. Historical data shows Tel Aviv real estate appreciates 3-7% annually in shekel terms over long periods, and over a decade you’ll likely experience multiple currency cycles. The entry rate matters much less than entry timing relative to shekel property price cycles.

What I’m Telling Clients Right Now

The honest conversation goes like this:

You’re facing a genuine currency headwind—17% erosion in dollar purchasing power over 12 months. That’s real, material, and painful. If the shekel weakens back toward ₪3.40-3.50/$ over the next year, you’ll wish you’d waited.

But waiting has costs too. The Tel Aviv property market correction has largely run its course in prime locations. Inventory is clearing. Prices in shekels have stabilized and will likely appreciate modestly in 2026. The negotiating leverage and distressed pricing that existed in mid-2025 is diminishing.

The offset dynamic you’re asking about is real—shekel depreciation can overcome shekel price appreciation in dollar terms. But you need both to happen in the right sequence and magnitude. That’s a double prediction, twice the uncertainty.

My recommendation: If you’ve found the right property in the right location at a reasonable shekel price, buy it. Don’t try to perfectly time currency markets—even professional currency traders fail at this consistently.

But only buy if:

• The property meets your specifications without compromise
• The shekel price reflects the 2025 correction (not still inflated from 2023-24 peak pricing)
• You can negotiate at least 5-8% below asking in the current environment
• Your time horizon is 5+ years minimum
• This represents no more than 10-15% of your net worth
• You’re buying to use, not purely speculate

If those conditions aren’t met, wait. The currency will eventually normalize, and better opportunities will emerge. But if you’ve found the right property at a corrected shekel price with meaningful negotiating leverage, the currency headwind shouldn’t stop you from acting.

The Bottom Line

The shekel’s strength despite rate cuts signals structural economic shifts—energy transformation, risk premium compression, sustained tech exports. These forces aren’t temporary, though the current exchange rate may overshoot fundamentals.

The Tel Aviv property market has corrected 7-13% in shekel terms after years of appreciation. Inventory is clearing. Prices are stabilizing. Prime locations are finding buyers again.

The offset dynamic you’re asking about exists: shekel depreciation can overcome shekel price appreciation in dollar terms. But timing both perfectly is nearly impossible.

The practical answer: stop trying to time currency markets and focus on whether the property makes sense at today’s shekel price. If it does, and you have conviction the shekel will eventually weaken (which I believe is more likely than further strength over 18-24 months), then the current currency headwind is the price of entry.

If you’re not willing to accept that, wait. But understand you’re making a double bet—that the shekel weakens AND that the right property remains available at comparable shekel pricing when it does.

In my experience, people who wait for perfect conditions rarely buy. And over any extended period, being in the market beats timing the market.

The question isn’t whether the shekel is at ₪3.14 or ₪3.40 today. The question is whether Tel Aviv is where you want to build your life, and whether this specific property serves that purpose at a reasonable price.

Everything else is noise.

Market data current as of January 2026. Currency and property values fluctuate. This analysis reflects professional assessment based on available data and historical patterns, not investment advice. Consult qualified financial, legal, and tax advisors before making property investments.