Ron Eichal: If the government keeps its promises to expand the housing supply, we'll have good reasons to believe that the market could see a slowing in the rise in prices.
Meitav Investment House Ltd. chief economist Ron Eichal believes that the Israeli real estate market has entered a slowdown that will last for years, and that home prices may fall. His conclusions are based on last week's housing figures published by the Central Bureau of Statistics, which showed an increase in housing starts in the first half of 2011, and the social protest, which could affect the market.
"If the government keeps its promises to expand the housing supply, we'll have good reasons to believe that the market could see a slowing in the rise in prices, and even a drop in the coming years," says Eichal.
Eichal cites the Ministry of Finance's survey, which stated that new home sales fell 16% in the second quarter compared with the preceding quarter. "The average home price was 3% lower in the second quarter than in the first quarter," he adds.
Eichal also cites the Central Bureau of Statistics, which reported that the housing inventory was sufficient for 9.5 months at the end of June, up from 7.5 months at the end of 2010. "There is a reverse correlation between home prices and the months of supply. In addition, the number of housing starts in the first half was 10% higher in the second quarter than in the corresponding quarter."
Eichal also notes the social protest, which drew 405,000 demonstrators nationwide last night, including 292,000 demonstrators at the main event in Tel Aviv.
Eichal says that the Bank of Israel's decision to keep the interest rate unchanged for September is a sign of things to come. "One of the reasons why the Bank of Israel kept the interest rate unchanged was the rise in home prices over the preceding 12 months. The pace of the increase continues to stay high, although it slowed for the second consecutive month... The Bank of Israel will probably keep the interest rate unchanged at least through the end of the year."
Published by Globes [online], Israel business news - www.globes-online.com - on September 4, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011
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