House prices are now falling in Israel

Lalaine C. Delmendo | October 15, 2020

Weighed down by government cooling measures and aggravated by the coronavirus crisis, Israel’s housing market is now cooling rapidly.

Israel house prices

The average price of owner-occupied dwellings in Israel fell by 3.22% during the year to Q2 2020 to ILS 1,526,000 (US$449,576), its worst contraction since Q2 2007, according to the Central Bureau of Statistics (CBS). When adjusted for inflation, prices fell 2.16%.

This was in contrast to an annual average price growth of 8.2% (6.9% in real terms) from 2009 to 2017. After falling slightly by 0.88% in 2018, dwelling prices rose again by 1.62% in 2019.

Quarter-on-quarter, nationwide dwelling prices fell by 5.86% (-5.58% inflation-adjusted) in Q2 2020.

Among Israel’s major cities, Ashkelon saw the biggest house price fall during the year to Q2 2020, with prices falling by 4.85%. It was followed by Netanya (-3.7%), Tel Aviv (-2.27%), Haifa (-1.83%), and Beit Shemesh (-0.87%). These declines were partly offset by strong y-o-y price growth in Holon (7.32%), Jerusalem (7.16%), Ramat Gan (6.34%), Beer Sheva (6.32%), and Bat Yam (4.99%).

The country’s most expensive residential area is Tel Aviv, where the average price of owner-occupied dwellings was ILS 2,829,100 (US$ 832,934) in Q2 2020. It was followed by Kfar Saba at ILS 2,212,100 (US$ 651,279), Ramat Gan at ILS 2,194,600 (US$ 646,126), and Jerusalem at ILS 2,119,100 (US$623,898). Beer Sheva had the cheapest housing in Israel, with an average price of ILS 1,076,800 (US$317,028).

Israel has experienced dramatic house prices rises in the past decade (2011 excepted), despite domestic political uncertainty, security threats, and the global financial meltdown. Israel’s house prices have risen by 118% (82% in real terms) from 2006 to 2017.


Year Nominal Inflation-adjusted
2008 4.10 -0.48
2009 22.35 18.14
2010 17.04 14.22
2011 0.04 -2.40
2012 5.82 4.12
2013 7.38 5.40
2014 7.21 7.42
2015 5.99 6.88
2016 4.97 5.26
2017 3.04 2.73
2018 -0.88 -1.94
2019 1.62 1.18
Sources: Central Bureau of Statistics, Global Property Guide

The main reason for the surge in house prices until 2017 was a supply shortage, due to low construction volumes. Other factors fueling 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 about 54,200 annually in 2015 to 2019 – 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% recently.
  • 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. Since its inception by end-2015, at least 60,000 households have won the lottery, but only 18,000 have actually exercised their right to purchase an apartment at a reduced price.
  • 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.

As a result, house prices fell by 0.9% (-1.94% inflation-adjusted) in 2018 and increased by just a minimal 1.6% (1.2% inflation-adjusted) in 2019.

Israel’s economy is projected to shrink by 5.9% this year, in contrast to the previous year’s 3.4% growth and its first contraction since 2002, due to the coronavirus crisis, according to the IMF’s October 2020 forecast. This is in line with the Bank of Israel’s forecast, with real GDP projected to fall by 4.5% to 7%. The Bank of Israel kept its benchmark interest rate at 0.1% in August 2020, following a 15-basis point rate cut in April 2020.

Recent history: house price rises cause social protests

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, average house prices in Israel rose almost 13% from Q1 2010 to Q2 2011.

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.


  Second intifada (Q3 00-Q2 03) (Q2 03 -Q1 06) Israel-Hezbollah War (Q1-Q4 06) (Q4 06 -Q4 07) Global econ crisis (Q1 08-Q4 09) (Q1 10 –Q2 11) Israeli social justice protests (Q3 11-Q1 12) (Q2 12 –Q4 17) Govt cooling measures (Q4 17-Q4 19)
Israel -6.47 28.09 -11.60 4.90 24.20 12.99 0.53 31.6 7.0
Tel Aviv -16.60 25.50 -12.60 22.37 41.27 8.26 -3.06 40.7 -17.4
Center 6.77 10.21 -12.12 16.22 34.61 20.34 0.21 34.2 14.4
South 11.96 -0.78 8.93 6.84 29.10 15.26 2.77 33.9 6.2
Jerusalem -3.86 36.77 -6.05 5.05 20.13 14.23 -1.22 29.7 -20.2
North 1.57 0.07 -8.00 -4.40 4.66 51.46 5.13 31.5 -0.8
Haifa -10.34 -0.68 -10.26 -8.47 29.85 23.54 9.82 35.5 6.8
Sources: Central Bureau of Statistics, Global Property Guide

Nationwide house prices rose by a meagre 0.53% from Q3 2011 to Q1 2012, falling in Tel Aviv (-3.06%), Sharon (-2.93%), Gush Dan (-2.26%), and Jerusalem (-1.22%). 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.

Israel Avg prices occupied dwellings

However Israel’s housing market slowed in recent years, after the government intensified its cooling measures. In 2018-19, house prices fell sharply in Jerusalem (-20.2%) and Tel Aviv (-17.4%). Yet nationwide house prices continued to rise by 7% in the past two years, as the sharp price decline in the two major cities was offset by the continued rise in house prices in other districts.

Property sales falling

After registering a strong 15% growth in 2019, housing sales are falling again this year, amidst the combined effect of the government’s cooling measures and the pandemic. In the first half of 2020, the total number of dwelling transactions in Israel fell by almost 17% to 33,268 units, according to the CBS.

Israel new dwellings sold

Residential property sales have fall in all districts, except in the South which registered a slight increase.

  • In Tel Aviv, housing transactions plunged by 20.2% y-o-y to 5,387 units during the first half of 2020.
  • In Jerusalem, transactions fell sharply by 24.4% y-o-y to 2,735 units over the same period.
  • In the Center, transactions fell by 22.9% y-o-y to 8,911 units.
  • In Haifa, transactions dropped 26.2% y-o-y to 4,774 units.
  • In the Northern district, transactions fell by a modest 2.9% y-o-y to 3,432 units.
  • In Southern district, transactions rose slightly by 1.7% y-o-y to 7,030 units in H1 2020.

Residential construction activity falling

Residential construction was already weak last year, with completions falling slightly by 0.9% y-o-y to 51,907 units, the first decline since 2007. About 25% of all completions last year were in the Central district, followed by Haifa and Tel Aviv, with 18.5% and 16.1% shares, respectively.

Dwelling starts were almost unchanged in 2019 at 53,106 units, following declines of 3% in 2018 and 3.2% in 2017. Likewise, dwellings under construction were also steady last year, at 122,057 units.

Israel residential construction

However the imposition of pandemic-related restrictions this year has accelerated the sector’s downward trend. Dwelling completions fell by 7.7% y-o-y to 24,251 units in H1 2020, according to the Central Bureau of Statistics. Likewise, dwelling starts fell by 11.1% y-o-y to 22,754 units.

Mortgage interest rates rising despite record-low key rate

In August 2020, the Bank of Israel kept its key rate unchanged at 0.1%, following a 15-basis point rate cut in April 2020 to cushion the economic impact of the coronavirus outbreak.

Despite record-low key rate, mortgage interest rates continue to rise. In August 2020, the average mortgage rate in Israel was 2.92%, up from 2.81% a year earlier, according to the Bank of Israel.

Israel mortgage rates

By loan term:

  • Up to 5 years: 2.88% in August 2020, up from 2.68% a year earlier
  • From 5 to 10 years: 2.79%, up from 2.27% a year earlier
  • From 10 to 15 years: 2.67%, up from 2.55% a year ago
  • From 15 to 20 years: 2.96%, down from 3.08% a year ago
  • From 20 to 25 years: 3.07%, down from 3.34% a year ago
  • More than 25 years: 3.2%, down from 3.41% a year earlier

Israel key interest rate

Mortgage market continues to expand

Despite gradually rising mortgage rates, the mortgage market continues to expand strongly. In the first eight months of 2020, new mortgages drawn for residential purchases totaled ILS 50.25 billion (US$14.82 billion), up 12.1% from the same period last year.

As a result, total housing loans outstanding rose by 11.4% to ILS 403.34 billion (US$ 119 billion) in H1 2020 from the corresponding period last year. Over the same period:

  • For residents, who accounted for more than 98% share, the amount of housing loans outstanding rose strongly by 11.5% y-o-y to ILS 396.15 billion (US$116.85 billion).
  • For non-residents, housing loans outstanding increased by 2.6% y-o-y to ILS 7.19 billion (US$2.12 billion).

According to the Bank of Israel, the government’s lottery program accounted for about 17% of all home purchases last year.

Israel housing loans

Despite the continued strong growth of housing credit, Israel’s mortgage market has actually expanded less than expected and was only around 27.1% of GDP in 2019, almost the same 15 years ago. This is a modest level of borrowing in a developed country.

The increase in housing loans unlikely to threaten financial stability

Despite strong growth, Israel’s mortgage market remains fundamentally healthy. The measures of risk inherent in housing debt have risen slightly in recent years, but they are still relatively low compared to other countries, according to the central bank.

“The quality of the housing credit portfolio in the banking system reflects a relatively low level of risk according to accepted indices of loss rates in the portfolio,” said the BOI in its December 2019 Financial Stability Report. “The measures taken in recent years to limit the risks derived from the mortgage market, which is a main factor in the concentration of the credit in the real estate and construction industry, contribute to the financial system’s stronger resilience against shocks in this market.”

In 2019, the repayment to income ratio is low, at an average of 26.4%, the term to maturity was stable at 22 years, with low loss rates in the portfolio.

Though housing debt constituted more than 65% of total household debt in 2019, 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.

Israel housing loans

“Housing credit is a significant part of household credit in Israel,” said the BOI in its Decemeber 2019 Financial Stability Report. However, “such credit is viewed as conservative, as it is generally secured by collateral (the home) and its growth is impacted as well by rises in asset prices.”

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

Poor yields; modest rent increases

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.

However 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.

Israel average rents

Nationwide rents increased 3.1% in Q2 2020 from a year earlier, to an average of ILS 4,050 (US$ 1,194) per month, according to the CBS.

By residential district:

  • Tel Aviv has the most expensive rents in the country at an average of ILS 5,130 (US$1,512) per month in Q2 2020, up 3.6% from a year ago
  • In Jerusalem, the average rent increased 2% y-o-y to ILS 4,292 (US$1,265) per month in Q2 2020
  • In the North, the average rent rose by 5.2% y-o-y to ILS 2,500 (US$737) per month
  • In Haifa, the average rent rose by 2% y-o-y to ILS 2,857 (US$842) per month over the same period
  • In the Center, the average rent increased 2.4% y-o-y to ILS 4,182 (US$1,232) per month
  • In the South, the average monthly rent rose by 3% y-o-y to ILS 2,916 (US$859) in Q2 2020

Economic activity plunging; unemployment rising

In the second quarter of 2020, the Israeli economy shrank by an annualized rate of 29%, following a contraction of 6.8% in the first quarter, according to the Central Bureau of Statistics. It was the biggest contraction ever recorded, due to the coronavirus crisis. Over the same period:

  • Private spending plunged 44.3%
  • Fixed investment fell sharply by 30.3%
  • Exports fell by 27.8% while imports dropped 39.5%
  • Government spending increased 26%

Israel gdp inflation

As such, Israel’s economy is projected to shrink by 5.9% this year, in contrast to the previous year’s 3.4% growth and its first contraction since 2002, according to the IMF’s October 2020 forecast. This is in line with the Bank of Israel’s forecast, with real GDP projected to fall by 4.5% to 7%.

Economic growth averaged 3.8% annually from 2010 to 2019.

The pandemic has also caused unprecedented unemployment in the country. Unemployment stood at 4.9% in August 2020, up from 3.8% a year earlier and the highest level since April 2016, according to the CBS.

The total number of unemployed persons in Israel was about 201,100 in August 2020, the highest since March 2016.

In 2019, higher state expenses and lower tax collection have pushed the budget deficit to about 4.5% of GDP, slightly up from the previous year’s 4.3% and the highest level since 2012. The government predicts that the deficit will surge to about 13% of GDP this year, due to the introduction of several stimulus plans.

Similarly, the debt-to-GDP ratio would rise to about 76% this year and to 78% in 2021, sharply up from 59.9% in 2019.

Israel unemployment

Consumer prices fell by 0.7% in September 2020 from a year earlier, its sixth consecutive month of negative inflation, amidst the ongoing health crisis. Inflation averaged 0.6% from 2012 to 2019.

After three elections and nearly 18 months of political deadlock, Israel has sworn in Prime Minister Benjamin Netanyahu and former rival Benny Gantz in May 2020 in a power-sharing deal. The two parties agreed to form a national unity government to deal with the Covid-19 crisis. Though recently thousands of demonstrators took to the streets to call for the resignation of Netanyahu over the corruption charges against him and for his handling of the pandemic.


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