Israel’s decade-long house price boom is now over, as government cooling measures intensify

Lalaine C. Delmendo | December 20, 2018

Israel house pricesWeighed down by government cooling measures, the average price of owner-occupied dwellings in Israel fell by 0.49% during the year to Q2 2018 (-1.21% in real terms), after an annual price rise of 4.48% the previous year in Q2 2017, according to the Central Bureau of Statistics (CBS).

It was the first y-o-y decline since Q2 2007.

On a quarterly basis, nationwide house prices fell by 0.15% (-1.14% in real terms) during the latest quarter.

The area covered by the Center and Jerusalem Periphery Towns saw the biggest price decline during the year to Q2 2018, with prices falling by 4.37%. It was followed by Tel Aviv with house price fall of 3.72%.

On the other hand, Haifa saw the biggest house price increase during the year to Q2 2018, with prices rising by 2.66%. Other districts that experienced minimal year-on-year house price rises included the Southern district (1.83%), Jerusalem (1.53%), and the Northern district (0.9%).

The country’s most expensive residential area is Tel Aviv, where the average price of owner-occupied dwellings was ILS 2,176,700 (US$610,053) in Q2 2018. It was followed by Jerusalem at ILS 1,882,400 (US$527,571), and the Center at ILS 1,746,400 (US$489,455). The North had the cheapest housing in Israel, with an average price of ILS 927,500 (US$259,946).

Israel has experienced dramatic house prices rises in the past nine years (with the exception of 2011), despite domestic political uncertainty, security threats, and the global financial meltdown. In fact, house prices have risen by 112% (77% in real terms) from 2006 to 2016.


Year Nominal Inflation-adjusted
2008 3.67 -0.88
2009 14.66 10.98
2010 17.19 14.12
2011 7.01 3.44
2012 2.61 0.88
2013 7.99 6.36
2014 6.12 5.62
2015 6.39 7.06
2016 6.63 7.21
2017 0.00 -0.24
Source: Central Bureau of Statistics (CBS)

The main reason for the surge in house prices until 2016 was a supply shortage, due to low construction volumes. Other factors fuelling the house price boom included the central bank’s expansionary monetary policies, and the lack of alternative investment options.

“Real estate accounts for 19% of gross domestic product directly and another 13% indirectly,” says Elli Kraizberg, a professor at Bar-Ilan University. “Real estate accounts for not less than 40% of the public’s total wealth.”

However since summer of 2011 when thousands of Israelis set up protest camps over worsening housing affordability, home prices have been top of the government’s agenda.

  • The government, which controls most of Israel’s land, boosted dwelling starts to more than 53,000 annually in 2015 and 2016 – the highest since 1997 – to address the supply shortage.
  • The Finance Ministry increased purchase taxes and introduced an additional levy on owners of three or more apartments. As a result, investment transactions dropped sharply from 40% of total transactions in early 2015, to 15% in February 2017, according to the BOI.
  • Since 2015, the government has intensified its sale of land at discounted prices to contractors, who must then sell apartments at below-market prices.
  • Israelis who do not own a home may vie for apartments through a lottery system that will award a record 15,000 new homes later this year.
  • In July 2017, the government approved a plan to strengthen the country’s long-term rental market, including the introduction of tax breaks to encourage the construction of rental units.

Israel´s economy is expected to expand by 3.7% this year, after growing by 3.5% in 2017, 4% in 2016, and 2.5% in 2015, according to the BOI.

The Bank of Israel kept its benchmark interest rate at a record low of 0.1% in August 2018.

Recent history: house price rises cause social protests

Israel Avg prices occupied dwellings

During the global crisis Israel enjoyed amazing double-digit house price rises. Tel Aviv housing rose by 41% between Q1 2008 to Q4 2009!  Only the Northern district registered a single-digit house price growth of 4.7%. Israel´s average home price rose by 24.2% between Q1 2008 to Q4 2009.

Despite Bank of Israel rate hikes until the key rate reached 3.25% in June 2011, from Q1 2010 to Q2 2011 average house prices in Israel rose almost 13%.

One result was a social protest movement, which began in July 2011 with a Facebook group protesting Israel’s rising cost of living (specifically housing costs) as well as the worsening condition of public services. Nationwide house prices rose by a meagre 0.53% from Q3 2011 to Q1 2012, while over the same period, house prices fell in Tel Aviv (-3.06%), Sharon (-2.93%), Gush Dan (-2.26%), and Jerusalem (-1.22%).


  Second Intifada (Q3 00 – Q2 03) (Q2 03 – Q1 06) Israel – Hezbollah War (Q1 – Q4 2006) (Q4 06 – Q4 07) Global economic crisis (Q1 08 – Q4 09) (Q1 10 – Q2 11) Israeli social justice protests (Q3 11 – Q1 12) (Q2 12 – Q4 17)
Israel -6.47 28.09 -11.60 4.90 24.20 12.99 0.53 31.6
Tel Aviv -16.60 25.50 -12.60 22.37 41.27 8.26 -3.06 40.7
Center 6.77 10.21 -12.12 16.22 34.61 20.34 0.21 34.2
Southern 11.96 -0.78 8.93 6.84 29.10 15.26 2.77 33.9
Jerusalem -3.86 36.77 -6.05 5.05 20.13 14.23 -1.22 29.7
Northern 1.57 0.07 -8.00 -4.40 4.66 51.46 5.13 31.5
Haifa -10.34 -0.68 -10.26 -8.47 29.85 23.54 9.82 35.5
Metropolitan Areas
Sharon 1.81 26.25 -10.08 9.33 32.91 9.33 -2.93 34.2
Gush Dan -2.24 5.22 -5.70 5.80 33.08 10.97 -2.26 49.3
Qrayot Haifa 6.15 -6.26 -2.81 -10.51 18.33 25.40 13.93 45.0
Source: Central Bureau of Statistics

House prices in the country then rose 31.6% from Q2 2012 to Q4 2017, with all districts registering double-digit increases over the period. Israel’s housing market has been unscathed by the Syrian civil war.

Property sales falling

Israel new dwellings sold

Property demand has fallen in the past two years as mortgage interest rates surged during the period. In 2017, sales of new dwellings fell by 19.6% y-o-y to 23,818 units, according to the CBS.

During the first five months of 2018, new dwellings sold plunged 20.9% to 8,437 units as compared to the same period last year.

Residential property sales have fallen in all districts, except in Jerusalem and the Center.

  • In Jerusalem, new dwellings sold rose by 31% y-o-y to 849 units during the first five months of 2018.
  • In the Center, new dwellings sold rose by 6.1% y-o-y to 3,045 units over the same period.
  • In Judea and Samaria Area, new dwellings sold fell 43.9% y-o-y to 248 units.
  • In Tel Aviv, new dwellings sold fell by 3.4% y-o-y to 1,792 units.
  • In the Northern district, new dwellings sold fell by 33.2% y-o-y to 568 units.
  • In Southern district, new dwellings sold plunged 53.5% y-o-y to 806 units.
  • In Haifa, new dwellings sold plummeted by 50.2% y-o-y to 1,131 units.

Residential construction activity mixed

While completions have risen, dwelling starts have fallen, in tune with falling demand. Still, current dwelling start totals are way above earlier periods.

Israel residential construction

Completions were up by 3.7% y-o-y to 47,844 units in 2017, the highest level since 1998. About 24.4% of all completions were in the Central district, followed by the Northern district and Tel-Aviv, with 18% and 16.4% shares, respectively.

Dwelling starts fell by 12.5% y-o-y to 48,177 units in 2017 – down from an average of about 51,000 units from 2013 to 2016 but still up from 35,000 units annually from 2001 to 2012.

The trend continued this year, with dwelling completions rising by 8.5% y-o-y in Q2 2018 while starts fell by 12.3%, according to the CBS.

Mortgage interest rates falling again, amidst record low key rate

Israel mortgage rates

Mortgage interest rates in Israel are now falling again, after rising the past two years. In August 2018, the average mortgage interest rate in Israel was 3.33%, down from 3.61% in August 2017.

By loan term:

  • Up to 5 years: 3.23% in August 2018, down from 3.44% a year earlier
  • From 5 to 10 years: 2.69%, down from 3.08% a year earlier
  • From 10 to 15 years: 3.08%, down from 3.49% a year ago
  • From 15 to 20 years: 3.48%, down from 3.91% a year ago
  • From 20 to 25 years: 3.71%, down from 4.08% a year ago
  • More than 25 years: 3.79%, down from 4.12% a year earlier

Israel key interest rate

After the financial crisis, the central bank cut the key rate by 375 basis points from October 2008 to April 2009 to a record low of 0.5% in April 2009. But Israel was less affected by the crisis than expected, and by June 2011 key rates were back up to 3.25%.

In October 2011 the rate hikes stopped, and instead, the BOI lowered the key interest rate.  It was the beginning of continuous rate cuts over succeeding years. In March 2015 the key rate hit a record low of 0.1%. In its August 2018 statement the central bank kept it there:  “The Monetary Committee intends to maintain the accommodative policy as long as necessary in order to entrench the inflation environment within the target range,” said the BOI.

The increase in housing loans unlikely to threaten financial stability

Despite strong growth, Israel´s mortgage market remains fundamentally healthy.

Housing loans rose by an average of 7.3% per year from 2007 to 2017, with an exception in 2015 when housing loans declined by 3.9% from a year earlier. During 2017, total housing loans outstanding increased 5.1% y-o-y to ILS321.18 billion (US$88.07 billion), according to the BOI.

Israel housing loans

“The growth rate of mortgages remained stable, and indicators of risk for household debt were stable,” said the BOI in its Financial Stability Report for the second half of 2017.

Banks, which are Israeli households’ main source of financing for purchasing real estate, continue to report a decline in problematic debts.

“Very few households are finding it difficult to meet their mortgage payments, apparently due to a combination of a low interest rate environment and a long period of growth characterized by low unemployment rates and persistent growth in the number of employed people and in income levels.”

Israel´s mortgage market has expanded less than expected and was only around 25.4% of GDP in 2017, almost the same ten years ago. This is a modest level of borrowing in a developed country.

Though housing debt constituted more than 67% of total household debt in 2017, households in Israel still have a large surplus of assets over liabilities. In fact, the ratio of household debt to GDP has increased only mildly in recent years and is low by international standards.

This means that the mortgage market remains healthy, despite the continued rise in total housing credit.

Poor yields; modest rent increases

Israel average rents

Over the past two decades the country’s homeownership rate has been gradually declining, and more households are renting, due to the shortage of affordable housing. Currently, the homeownership rate is 67.6%, down from 68.8% in 2008 and 73% in 1995.

Gross rental yields on apartments in Tel Aviv are very low, supporting the view that properties are somewhat overpriced. Yields range from 2.6% to 3.1%, based on Global Property Guide research, with smaller apartments having higher yields.

Nationwide rents increased 2.4% in Q1 2018 from a year earlier, to an average of ILS3,827 (US$1,043) per month, according to the CBS.

By district:

  • Tel Aviv has the most expensive rents in the country at an average of ILS5,603 (US$1,526) per month in Q1 2018, up 1.5% from a year ago
  • In Jerusalem, the average rent increased 2.2% y-o-y to ILS4,222 (US$1,154) per month in Q1 2018
  • In Haifa, the average rent rose by 2.1% y-o-y to ILS2,629 (US$719) per month in Q1 2018
  • In Gush Dan, the average rent increased 2.9% y-o-y to ILS3,968 (US$1,085) per month in Q1 2018
  • In the Center and Jerusalem Periphery Towns, the average rent increased 2.7% y-o-y to ILS3,764 (US$1,029) per month over the same period
  • In the Southern district, the average rent rose by 3.9% to ILS2,814 (US$769) in Q1 2018 from a year earlier
  • In Sharon, the average rent increased slightly by 0.5% y-o-y to ILS4,446 (US$1,215) in Q1 2018
  • In the Northern district, the average rent rose by 1.6% y-o-y to ILS2,565 (US$701)
  • In Qrayot Haifa, the average rent rose by 2.8% y-o-y to ILS2,461 (US$673) in Q1 2018

Strong economic growth; very low unemployment

Israel gdp inflation

The Israeli economy expanded by 3.5% in 2017, after annual growth rates of 4% in 2016, 2.5% in 2015, 3.2% in 2014, 4.4% in 2013, 2.4% in 2012, and 5.1% in 2011, according to the BOI.

The economy is forecast to expand by around 3.7% this year, according to the BOI.

Unemployment stood at 4.2% in July 2018, slightly up from 4.1% a year earlier, according to the CBS. The country’s annual unemployment rate has been generally declining since 2003.  Unemployment is expected to fall further to 3.3% in 2018, from 4.3% in the previous year, according to the BOI.

Israel unemployment

Inflation is expected to be 1.3% this year, up from 0.2% in 2017, -0.5% in 2016, from -0.6% in 2015, 0.5% in 2014, 1.5% in 2013, 1.7% in 2012, and 3.5% in 2011, based on the forecast from the BOI.

In 2017, the country recorded a budget deficit of ILS28 billion (US$7.67 billion), representing just 2.2% of GDP – the second smallest deficit since 2008, according to the Finance Ministry. The country is expected to post a budget shortfall of 2.9% of GDP this year.

Israel’s public debt was equivalent to 60.8% of GDP in 2017, down from 62.3% in 2016, 64% in 2015, 66.1% in 2014, and 67.1% in 2013, according to the BOI. The country’s public debt has been falling since 2009.

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