Something strange is happening in Israel’s housing market. Prices are still going up, listings are piling up, and buyers are stepping back. How is all of that true at the same time?
This isn’t just about real estate, it’s about a country in transition.
If you’re watching from the sidelines thinking of buying, investing, or just trying to understand what the heck is going on, buckle in. What’s happening in Israel right now is way deeper than just prices per square meter.
Let’s break it down.
The Illusion of Rising Prices
At first glance, it looks like housing prices in Israel are still climbing, almost 8% over the past year.
But here’s the catch, that data is already outdated.
Israel’s official housing index is based on transactions from a few months ago. So while it shows prices rising in January and February, the boots on the ground reality in April is very different.
Why? Because there’s a flood of unsold apartments sitting on the market. Over 80,000 brand-new homes across the country still haven’t found a buyer. At the current sales pace, it would take over two years to sell them all, and in some cities, way longer.
In Kiryat Ono, eight years. Ramat Gan, four years. Tel Aviv, more than two and a half.
If you’re not familiar with these places,
- Tel Aviv is Israel’s financial and cultural capital, think of it like Israel’s New York.
- Kiryat Ono and Ramat Gan are Tel Aviv suburbs that were booming, until they built too fast for buyers to keep up.
Despite the numbers, prices haven’t dropped much. Why? Because developers are stuck between a rock and a hard place. They can’t afford to lower prices without hurting their balance sheets or violating loan terms. So instead, they’re throwing in sweeteners, rent coverage, extended payment plans, and even luxury upgrades, basically giving discounts without officially lowering prices.
Renters Take Over
While home buying is slowing down, the rental market is red hot.
With mortgage rates above 5% and down payments requiring serious cash, more and more Israelis are staying renters. And that’s pushing rents higher, especially in job-heavy areas like Tel Aviv and Jerusalem.
- On average, rent went up around 5% over the past year.
- Renewing an old lease? Expect to pay around 2.7% more.
- Signing a new one? Add about 3.5%.
In Tel Aviv, a 3-room apartment now averages ₪6,967, about $2,000 USD a month. That’s if you can find one.
Why does this matter? Because when mortgage payments start costing 25 to 30% more than renting the same home, the choice is obvious, people rent. And that means less demand to buy.
What’s Driving All This?
A few major factors are reshaping the market,
1. Taxes Just Went Up
Starting January 2025, the government raised VAT, Value Added Tax, from 17% to 18%. That’s like adding ₪10,000 in tax on every ₪1 million of property value.
Capital gains taxes also increased for long-term owners, while municipal property taxes, called “Arnona” in Israel, spiked too, by more than 12% in Tel Aviv.
And don’t forget, purchase tax brackets were frozen. That means, even with inflation, the tax you pay when buying a home doesn’t adjust. So buyers are effectively paying more, without seeing it in black and white.
2. No More “Buy Now, Pay Later”
Developers loved offering 20/80 deals, pay 20% upfront, 80% when the home is ready. But in May 2025, the Bank of Israel cracked down.
Why? Because those schemes let people buy homes they couldn’t really afford, and artificially inflated market prices.
Now, without these offers, demand is expected to cool even more.
3. Interest Rates Are Still High
The Bank of Israel’s base interest rate sits at 4.5%. That makes mortgages expensive, especially compared to rent.
To put it simply, people can’t buy if they can’t borrow. And right now, borrowing is painful.
4. Labor Shortages, Slower Construction
Ever since the October 2023 war, the construction sector has been short tens of thousands of workers, many of them Palestinian laborers who were barred from working due to security issues.
That’s caused project delays, longer construction times, now over 34 months for many buildings, and higher building costs. Materials and labor are both more expensive, and it shows.
What About Government Support?
The government is trying to help, kind of.
There’s the “Dira Be’Hanacha” program, literally “Apartment at a Discount”, where eligible first-time buyers can enter lotteries for homes 20% below market value.
And for new immigrants, known in Hebrew as Olim, there are big tax breaks on home purchases, up to ₪6 million with little or no tax.
But those are drops in the bucket compared to the broader affordability crisis.
City by City Breakdown
Here’s how things are playing out across the country,
Tel Aviv, High prices, high supply
- Tel Aviv has the most unsold new apartments in Israel, over 9,200.
- Developers overbuilt, counting on endless demand. But now? Buyers have options.
- Still, luxury sales, like Quentin Tarantino’s ₪50 million purchase, show there’s life at the top.
Jerusalem, Strong but stabilizing
- Nearly 7,500 unsold new units.
- Prices are still high but growing more slowly.
- Foreign buyers, especially from the U.S., UK, and France, are keeping demand stable.
Haifa and the North, Underrated and rising
- Home to Israel’s biggest tech park outside Tel Aviv, MATAM.
- Haifa is more affordable, and with new rail lines to the center, it’s getting attention.
- Some northern cities are seeing 4 to 5% annual price increases, plus solid rent demand.
The South, Balanced
- Inventory is low and affordable.
- Big wins for people looking for a deal, especially with government subsidies in play.
Is a Price Drop Coming?
Maybe.
Analysts from Dun and Bradstreet say signs of a slowdown are showing, land prices are dropping, sales are slow, and without those creative financing offers, prices might finally cool.
But don’t expect a crash. Developers are stubborn, and many Israelis still see real estate as the safest long-term investment, especially in cities like Jerusalem or Tel Aviv.
Final Thoughts, What Now?
This market is weird.
Prices are up. So is supply. So are rents. But demand? It’s uneven and unsure.
If you’re a buyer, this might be the most leverage you’ve had in years. Developers are motivated. Interest rates suck, but that could change later this year. If you can find a deal and survive the short-term pain, you could come out ahead.
If you’re a renter, expect more competition and rising costs. Consider locking in longer leases if you can.
If you’re a developer, welcome to the reset. Those who can adapt, by lowering prices, improving terms, or targeting the right markets, will survive. The rest? It might get ugly.
If you’re an investor, look at places like Haifa, Beersheva, or Ramla, not just Rothschild Boulevard. The north and south are on the rise, especially with Israel’s infrastructure revolution picking up steam.
This isn’t the end of the boom, but it might be the end of blind price growth. Israel’s market isn’t collapsing. It’s maturing.
TL,DR – Too Long, Didn’t Read
- Prices are still rising, but mostly due to outdated data and hidden developer discounts.
- Unsold homes are piling up, especially in central Israel, over 80,000 units nationally.
- Rents are soaring because buying is too expensive for many.
- Taxes and interest rates are squeezing both buyers and developers.
- Haifa, the North, and the South offer real opportunities as Tel Aviv overheats.
