In July and August, Israel’s housing market continued its upward trend, with home prices rising at an annual growth rate exceeding 10%. This surge in demand wasn’t limited to new homes; the pre-owned housing market has also seen a revival. A notable indicator of this momentum is the NIS 9 billion in mortgage loans taken out in July—the highest figure in two years. However, not all areas saw uniform growth, with Tel Aviv registering a price decline.
Despite a year-long war, an economic recession, and persistently high interest rates, the housing market has defied expectations. A monthly price index shows a consistent increase of 0.7%, with a total home price index rise of 5.3% over the past six months, translating into annual growth of over 10%.
Market Surprises Amid Economic Challenges
This continued price growth is puzzling, especially considering the challenging circumstances. The country has been at war, the economy is in recession, and the prime interest rate remain high at 6%. Furthermore, supply is abundant, with 68,000 new unsold apartments at the end of June 2024—10,000 more than the same period last year. Housing prices in Israel are already exceptionally high relative to the average wage, likely more so than in any other Western nation.
Nevertheless, the market’s resilience can be attributed to factors that have kept demand strong, even during difficult times.
Pent-Up Demand Fuels the Surge
One critical reason for this rise is the pent-up demand from buyers who held off on purchasing during the slowdown in 2023. That period saw a steep transaction decline and moderate price drops as many potential buyers entered “standby mode,” deterred by rising interest rates and political turmoil following the legal reforms. Demand did not disappear; it was simply on standby. With Israel’s annual demographic growth at 2%, demand for homes is inelastic—couples continue to marry, and families grow. Thus, in 2024, despite the ongoing conflict, these buyers returned to the market, leading to a surge in transactions and driving prices upward.
It should also be remembered that while the prime interest rate remains high at 6%, its stability over recent months has provided certainty for buyers, enabling them to make informed purchase decisions.
Transaction and Mortgage Boom
The impact of this demand has been felt throughout the housing market. In Q2 2024, approximately 22,700 homes were sold, marking a 40% increase compared to Q2 2023. In contrast to earlier in the year, when the increase in transactions was primarily in the new apartments sector, Q2 also saw a notable revival in the second-hand housing market, with over 12,000 second-hand apartments sold—a 25% rise from the previous year.
Mortgage activity also reflected this heightened demand, with NIS 9.06 billion in Israeli mortgage loans in July 2024, a figure last seen in August 2022, before the interest rate hikes began. This represents a 41% increase from July 2023, with the average mortgage loan now at NIS 1.013 million.
Optimism and Expectations Drive Market Behavior
Despite the broader economic challenges, many Israelis remain optimistic about the future, and their expectations of rising home prices have kept the market buoyant. A recent survey by Mizrahi Tefahot Bank, Israel’s largest mortgage lender, found that 44% of real estate investors believe Israel’s economic situation will improve within the next year, compared to 29% who expect it to worsen.
However, this optimism is tempered by concerns about risk. The survey also revealed that 37% of respondents are considering purchasing property abroad, with 48% viewing such investments as a “risk hedge” against their assets in Israel.
Divergent Regional Trends
It’s important to note that price increases are inconsistent across all regions. In Tel Aviv, the country’s most expensive city, home prices have declined. The city’s high-tech sector, which has weakened over the past year, is likely a key factor in this drop. The average apartment price in Tel Aviv fell to NIS 4.15 million in Q2 2024, down 2% from NIS 4.24 million in Q2 2023. The average price of a four-room apartment dropped even further, from NIS 5.14 million to NIS 4.75 million, representing a 7.5% decline.
In Jerusalem, home prices have remained stable, with the average cost of an apartment holding steady at NIS 2.87 million throughout the year.
Foreign Buyers Slowly Returning
Another emerging trend is the re-entry of foreign buyers into Israel’s housing market. Ministry of Finance data shows that non-residents purchased approximately 160 homes in May and June, nearly double the number purchased during the same period last year. Jerusalem remains the preferred destination for these buyers, with almost half of the purchases concentrated in the city. Additional purchases were concentrated in Kiryat Ono and Netanya, which saw a surprising increase in activity.
While interest from foreign buyers is on the rise, the pace has been slow due to the ongoing war and geopolitical uncertainties. Many potential buyers actively research the market and gather information yet remain hesitant to invest in such an unstable environment. However, the upcoming U.S. elections in November and the troubling rise in global antisemitism are prompting more Jews, particularly from the U.S., to consider securing their future in Israel, viewing it as the safest and most welcoming country for Jews. This trend will likely accelerate the influx of foreign buyers into the market when Israel’s security stabilizes; foreign interest is expected to surge, leading to a significant increase in transactions over the coming years.
Debbie, founder and CEO of Buyitinisrael, has been a leading figure in real estate since 2004, dedicated to helping foreign buyers purchase homes in Israel. Observing a lack of reliable English-language resources on Israeli property, she founded Buyitinisrael in 2020, drawing on her extensive real estate and marketing experience, deep knowledge of the local market, and strong industry connections.
Debbie can be reached at [email protected].
