House prices in the Shadow of Corona
Updated: Apr 21, 2020
The Israeli real estate market under the Shadow of Corona
People keep on asking me what’s going to happen to the Israeli real estate market in general and house prices in Israel, specifically, under the shadow of Corona, considering the bleak economic outlook all over the world.
To be honest, my immediate focus has been the health and security of my family and I haven’t been keen to respond to what can be seen as an unfeeling question, considering all the suffering that is going on.
However, we’re now into the second month of a partial lockdown and concern for our security also includes our financial security, and now we need to focus on that too.
So, what will happen?
The short answer is that I don’t know, so I’m going to go through some potential scenarios to help us make more an informed decision. If you want, skip to the bottom line:
People will have a lot less money to spend as a result of Corona virus
· Lost jobs
· Businesses going bankrupt
· Higher taxes to pay for all the government’s extra expenditure
How will this affect the Israeli real estate market? In theory, this should bring down prices, but in my opinion, this is more likely to affect the prices of larger or luxury apartments. With reduced spending power, there may be a surge in demand of smaller apartments. Additionally, rental incomes for those apartments could go up if households cannot afford to buy.
Governments may decide to embark on Quantitative Easing (i.e. print money) to pay for their increased expenditure
How will this affect the Israeli real estate market?
How will this affect house prices?
· This could lead to inflation. Inflation by definition means higher prices, but higher prices also means less spending power for households. Once again, this could affect luxury housing more.
· Inflation means higher interest rates – once again cutting into the spending power of households.
· Higher interest rates can also lead to more foreclosures, with some people no longer able to pay their mortgages – bargains may be more available, but note, Israel has strict laws to protect homeowners from foreclosures.
The Bank of Israel may decide to keep interest rates low to encourage new businesses and investment
· At the moment, rates 0. 1%. They have never been this low, and it’s practically impossible for them to get lower. If you do want to buy, this is a very good time to take a mortgage and to fix it at a low rate.This would have a positive effect on the Israeli real estate market.
Shortage of workers may lead to less new homes
· Israel relies on its Arabs and Palestinians for its building. Many of those areas are on an even stricter lockdown.
· Less new homes = less supply. Less supply means higher prices.
On the other hand, many building sites are still working full time.
This is probably the most important factor with bleak results for the Israeli real estate market.
If the crisis continues for a number for months, it's very possible the world will enter a very severe recession and possibly even a depression. Shares have already dropped around 30-40%.
Under these circumstances, it will be hard to see how house prices will be able to maintain their value. I especially worry about house prices abroad, and while Israel seems to have miracles up its sleeve – before the crisis, unlike other western nations, it had a very positive balance of payments deficit, its GDP was up and it has a very young population that is growing - it can't ignore economic realities for too long. However, if prices do go down, it could be a good time to invest in Israeli real estate.
Jews abroad think more of coming home to Israel
Possibly a pipe dream – but quite a number people have begun to focus on what’s really important to them. And for many, it’s Israel. More demand from abroad means higher prices. But at the same time, they too may also have less money.
There are a lot more potential scenarios out there for the Israeli real estate market and the shadow of Corona may be with us for many more months to come
So, at the end of the day, who knows?
All I can say is that is Israel is our future and I believe in Israel. Not only due to religious beliefs but also because Israel has weathered many storms in her history and has managed to come through with her economy intact.
So, if you want to buy in Israel and you can, do it now and don’t wait.
The Israeli real estate market has many options for all types of buyers. It would be wise to check out all the options to see what is the best one for you.
Contact us today and we can help find you some reasonably priced options.