It amuses me every time anew to see how, when journalists want predictions of what will happen to real estate prices, they interview contractors, appraisers and realtors as experts. They really are experts, but what interest has a contractor to say that home prices will fall? He'd have to be crazy. Is he going to ruin his income out of his own mouth? The same applies to realtors and appraisers. If they say that home prices are on their way down, they'll lose their livelihoods. If everyone believes that prices are going to fall, the market will freeze in anticipation of that, and meanwhile they'll have no work.
The sum of the forecasts of these experts is that the world is carrying on as normal and home prices in Israel will not fall, and will even rise. As though the coronavirus pandemic had never happened.
The trouble is that, even if we ignore the built-in conflict of interests of the real estate experts, there is one economic indicator that has never proved wrong, and it says precisely the opposite. It's called an economic crisis. In economic crises, home prices in Israel fall, period.
Prices have fallen in every previous economic crisis in Israel: after the bursting of the dot.com bubble and second intifada (2201-2004), economic growth in Israel was zero and home prices fell from their peak by 15% in real terms; in the economic crisis and hyper-inflation of the mid-1980s, home prices fell by 25% in real terms; and in the economic crisis of the mid-1970s following the Yom Kippur War, home prices fell in real terms by 30% from their peak.
The exception was the financial crisis of 2008, in which home prices did not fall, and even rose. That, however, was because prices were at a low after a decline followed by stagnation in the period 1998-2006.
The coronavirus pandemic hit us in a completely different situation. Home prices in 2020 are at an all-time high, in both nominal and real terms, and by some way.
A recession is the most severe kind of economic crisis. It means that the economy shrinks, in terms of GDP, for at least two successive quarters. In the first quarter of this year, economic activity in Israel declined by 6.8%. The second quarter figures will be no less bad. The unemployment rate is without question the highest in our history. Or in simple words, the coronavirus has brought upon us the deepest economic crisis ever.
Dr. Adam Reuter is chairman of Financial Immunities Ltd. and co-author of the book "Israel - Island of Success".
Published by Globes, Israel business news - en.globes.co.il - on August 10, 2020
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