Over the past few years, the Israeli property market has made headlines throughout the world, being cited at times as one of the world’€™s hottest places for purchasing real estate. With home sale prices having risen 67% since May 2007 and a 12% rise since August 2010, skeptics have been chiming in about an imminent €œbubble burst.

The winter holiday season, typically a busy time in the Tel Aviv real estate market with the great influx of foreigners looking to buy and Israelis looking to move in the summer months, was mostly a quiet one. The national number of sales was down 55%, while in Tel Aviv the sales volume dropped 84% from December 2010. Despite the plummet in volume, however, prices were 8% higher than those during the previous quarter.

The major contributors to the slowdown have been the increase in interest rates, the banks’€™ continued restrictions on lending, the social protests throughout the country, and the political situation. With the protests subsiding, the release of captured soldier Gilad Shalit, and increased diplomatic talks between Israel and the Palestinians, and Israel and its neighbors, the improvement of the latter points have begun to bring back confidence that had previously been exhausted from the market. The Iranian€ factor, it seems, hasn’t taken much of a toll on the market. The evidence, it would appear to indicate, shows that news headlines make no difference at all to those who live here and plan on staying.

The banks, however, have yet to budge. Many who had been looking to purchase their homes have turned to the rental market, which has skyrocketed over the past year, despite the wide spread protests against housing prices this summer. Where the average three bedroom apartment in Central Tel Aviv could be rented for 6,500 – 7,000 NIS in 2010, the average price has now climbed to 7,500 – 8,500 NIS. Three bedroom apartments with a balcony, parking, and and elevator, in the city’€™s trendiest neighborhoods of Lev Hair and Neve Tzedek have been rented out over the last month for 12,000 NIS and 15,000 NIS respectively. One bedroom apartments will cost the renter even more, with average prices exceeding 5,000 NIS. Young couples, students, and roommates looking for apartments under 5,000 NIS report it taking over a month to find the ideal place, in most cases with the help of a real estate broker, a practice previously unheard of for apartments in this price range. Where renters used to be able to evaluate their options, decisions must often be made at the same moment as seeing the apartment, due to the extensive competition.

For those in the market to purchase an apartment, the protests and economic situation have not produced much more, with prices remaining stable throughout the end of the year. Buyers have remained quiet, preferring to wait to see what the market will yield, which accounts for the lack in sales volumes throughout the country over the summer. The lack of demand spurred some great values to be released to the market by motivated sellers trying to jump ship, with these under priced assets accounting for many of the sales that did occur over the past few months. A new 180 sm garden apartment in the seaside Tel Aviv neighborhood of Kerem haTeimanim sold for under 21,000 NIS per square meter, substantially below the 30,000 NIS per square meter average that the neighborhood typically commands. On the other end of the spectrum, highly desirable small one bedroom apartments near the sea were sold for as high as 40,000 NIS per square meter, just showing that for those who find their perfect home, the market conditions remain a non factor.

With the spring ahead of us and an improved social and political situation in the country, the real estate market may indeed continue to improve more over the next few months. As both buyers and sellers continue to gain confidence in the market, prices will stabilize, bringing back both the demand of years past, and most important, the needed supply of apartments to make their dreams come true.