Last week, the Bank of Israel wrote in its "Monetary Policy Report, July-December 2013", "In total over the past three years, the number of building starts exceeded the growth in the number of households. Even though it takes time from the moment construction of a home begins until it is ready for occupancy, these data may moderate the effect on home prices of the shortage of homes that was created as a result of low building volumes in the previous decade."
At the press conference for the marketing of land for 11,000 housing units in Rosh Ha'Ayin last week, Minister of Finance Yair Lapid said, "There is no day I am not asked, 'Have prices fallen?' And the answer is that they will fall, because the market will not stand for this. It sees what people are doing, and it understands that we are creating here construction momentum of a kind that has not existed for years. People realize that we are prepared to lose money on land in order to lower prices, and they're learning to tell contractors and developers that if the price of land is falling, there is no reason why apartments should still be expensive."
Nonetheless, the list of asking prices for homes on the Homeless classified ads site indicates that homeowners are not impressed. They have heard about the threat of a bubble from the Bank of Israel for at least three years, and they remember Lapid promising that home prices would fall even before the January 2013 elections (prices have risen 8% since then), and the former mayor of Rosh Ha'Ayin had the opportunity to stand on the bare hills with government ministers and promise that they would soon be covered with buildings.
In practice, asking prices for homes continued to rise in January 2014. Asking prices for all types of apartments rose in 11 of the 14 cities covered - something not seen in a long time.
Tough month in the capital market
It should be remembered that January was a tough month in the capital market, and many Israelis apparently preferred the uncertainty in the residential real estate market (see the quotes from the Bank of Israel and finance minister above) to putting their money in the capital market and interest-less deposits.
Currently, people seeking a four-room apartment with an asking price of less than NIS 1 million must roam far into the periphery in the north or south. Skyrocketing home prices in recent years, far more than the rise in rents, have slashed the advantages of investing in those areas, and offer a gross return of 5% on the investment, for investors who can find a tenant, of course.
Methodology
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 February 10, 2014
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