Israel’s Real Estate Resilience – Can It Last?

The Israeli real estate market is currently navigating a complex landscape, shaped by high interest rates and the ongoing war that began on October 7th, 2024. Despite these challenges, property prices continue to climb, defying traditional market dynamics of supply and demand.

Between July and August 2024, the market saw a 0.3% increase in average dwelling prices compared to the previous two months. While this uptick appears modest, it signifies a continued momentum despite the ongoing economic uncertainty. This follows a year of price adjustments in 2023, when real estate prices fell due to global inflation, rising interest rates, and shifting consumer demand. The fact that prices are now rebounding—evidenced by a 6.3% year-on-year increase from July–August 2023 to the same period in 2024—highlights the resilience of Israel’s housing sector.

However, regional variations in price trends reveal important nuances. For instance, while the overall national price rose by 0.3%, Jerusalem saw a decline of 0.5%. This could be due to local policy changes or decreased demand for high-priced homes. Haifa, on the other hand, experienced a 1.6% price increase, driven by local economic development and its appeal as a more affordable alternative to Tel Aviv. Central and Northern Districts posted moderate gains of 0.4%, while Tel Aviv’s mere 0.1% rise suggests the city is approaching price saturation, with affordability concerns tempering further escalation. The Southern District, with a 0.3% increase, reflects slower growth but still aligns with broader national trends.

Newly-built homes, often seen as a barometer of market health, also experienced growth, with prices rising 1.3% between July and August 2024. This demand for new dwellings, bolstered by government-supported housing projects, shows how critical government intervention has been in sustaining market affordability. Government-backed transactions accounted for over 22% of these sales. However, when excluding these subsidized transactions, price growth for newly-built homes falls to 0.5%, indicating that without this support, the market might face more muted growth.

This reliance on government assistance raises questions about the long-term sustainability of housing affordability. As construction costs continue to rise and high interest rates persist, the market’s heavy dependence on government-backed projects could limit private sector growth, creating potential distortions in the market over time.

Despite these challenges, the Israeli housing market shows resilience. The 6.3% year-on-year increase reflects both market recovery and inflationary pressures brought on by the war effort and pent-up demand. Yet, as the Bank of Israel maintains elevated interest rates to combat inflation, and both global and local economic uncertainties loom, there is a risk that housing demand could cool off in the coming quarters.

Having worked as a real estate advisor in the Israeli property market for over 15 years, through the financial crisis, the cost of living protests, multiple wars, political instability, and essentially everything that’s happened in Israel and the world since 2009, I’ve witnessed how resilient this market can be, especially in times of uncertainty. However, this resilience must be carefully managed. While moderate growth is expected in 2025, the pace of price increases is likely to accelerate after the war, particularly in key urban areas like Tel Aviv. Regional disparities in price trends suggest that areas outside Tel Aviv, especially Haifa and the Northern District, may offer promising investment opportunities as they catch up with more central regions.

Policymakers will need to remain vigilant, ensuring that interventions in the housing market promote long-term stability rather than short-term gains. The combination of regional demand, government involvement, and broader economic factors will continue to shape Israel’s housing market in the coming years.