Home prices are still rising in most areas, while rents are falling, indicates asking prices and rents in December 2013 on the Homeless classified ads site. Anyone seeking signs of a bubble ought to begin there.
In an article for "Globes" in December, Prof. Yakir Plessner, a former deputy governor of the Bank of Israel, said that the disconnection of home prices from rents reflects real demand for housing and a real ability to pay the asking prices (no bank gives a mortgage for rent), may indicate a bubble component in prices. For now, he says, a worrying gap has not emerged in Israel (which would erode the yields from rent). However, Ministry of Construction and Housing figures and the Homeless classified ads show that the gap is widening.
According to Ministry of Housing figures, home prices rose by a nominal 49% between July 2009 and October 2013, while rents rose by 22%. As a result, movement on the graph of the housing prices index and the rents index, which until mid-2000 was closely correlated, saw a 20% gap open up by mid-2011 (in favor of the home prices index naturally). The gap narrowed to 15% by July 2012, but subsequently widened again to reach a record 23% by October 2013. According to Ministry of Housing figures, the average rent was NIS 3,466 a month at the end of the quarter, and the average home price was NIS 1.26 million - giving an average gross yield of 3.3%. Nonetheless, the low interest rate also provides a reason for this gap, because of the cheap mortgages, but no less important is the lack of alternative investments with similar yields.
To summarize the year, home prices rose in most areas in 2013. The biggest rise for the classic four-room apartment was in Beersheva, where the asking price rose by 7.7%. It was followed by Tel Aviv, with a 6.9% rise in the asking price. The average asking price of a four-room apartment in Tel Aviv (NIS 3.03 million) was four times the average asking price in the south (NIS 684,000).
The asking price for a four-room apartment fell in four areas in 2013. It fell by 5% in Ramat Gan-Givatayim (indicating the differentiation and strength of adjacent Tel Aviv). The asking price fell by over 2.5% in Netanya, 1.2% in Haifa, and by less than 0.5% in Petah Tikva.
In contrast to other online classified ad sites, Homeless charges for all ads it airs, which makes sellers quote prices in accordance with their real expectations and avoids freeloaders. The index gives two figures: the asking price of the apartment, and the average rental yield in each area. The listed rent is the gross rent. A month without a tenant, maintenance expenses, taxes (assuming that the rent is more than NIS 4,500 a month), and other costs can reduce the yield by about 10% on average.
The "Globes"-Homeless Index displays the yield per apartment - the price of the apartment divided by the rent. Even if there are distortions in listed prices for sale or rent, they should offset each other if they are in both the numerator and the denominator.
Published by Globes [online], Israel business news - www.globes-online.com - on January 7, 2014
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