Housing Market Shows Signs of Moderation
Israel’s residential property market remains robust, although recent indicators suggest a possible slowdown in previously vigorous price growth. According to recent market analyses, home values have increased by approximately 6.8% over the past year, reflecting strong, yet gradually decelerating growth compared to the previous year.
Between November and December 2024, home prices rose marginally by about 0.5%, indicating a significant slowdown from the steep rises seen earlier in the year. This trend is partially attributable to lingering impacts from the conflict in late 2023, combined with ongoing shortages in housing supply, steady population increases, and considerable interest from international investors, particularly Jewish buyers from abroad seeking secure real estate investments in Israel.
Regional differences are notable: while cities like Jerusalem and areas in northern Israel experienced modest price growth of roughly 1.5%, central Israel and particularly Tel Aviv observed a minor price contraction, dropping approximately 0.7% during the same timeframe. By February 2025, Israel’s Consumer Price Index (a measure indicating average prices paid by consumers for a basket of goods and services) showed nearly flat growth in housing costs, underscoring the gradual deceleration in price appreciation.
Home Sales Slowdown and Increasing Inventory Levels
Early 2025 has brought noticeable changes to sales activities within the housing market. January 2025 experienced a significant decline, with approximately 7,050 home transactions—a marked decrease of nearly 35% from the heightened activity observed at the end of 2024, when buyers accelerated their purchases in anticipation of an announced increase in VAT (value-added tax, an indirect tax charged at each stage of production or distribution) set to take effect at the start of the year.
Currently, the housing inventory has reached unprecedented levels, highlighting a market saturation not previously observed. The inventory of unsold housing units has surged dramatically, approaching approximately two years’ worth of supply at the present reduced sales pace. Tel Aviv remains the city with the highest volume of unsold newly constructed apartments, nearing 9,200 units. Jerusalem follows with a sizable backlog of around 7,500 apartments still awaiting buyers. This imbalance is causing concern among industry experts, who warn that the housing sector may be headed towards a pronounced downturn if the surplus continues to accumulate.
Shift in Investor Activity and Rental Market Dynamics
Investor behavior has played a significant role in shaping recent market dynamics. A wave of transactions occurred in December 2024, as buyers hurried to finalize purchases before the VAT increase was enacted. However, this buying spree was followed by a marked slowdown, with January 2025’s sales significantly lower compared to both the previous month and the same period in 2024.
As the cost gap widens between owning and renting, an increasing number of Israelis are opting to rent rather than purchase homes. Today, monthly mortgage payments have become significantly more expensive than renting comparable properties, representing a substantial shift from traditional market norms where mortgages typically offered greater economic advantages over renting. Consequently, rental prices across Israel continue to climb, reflecting increased demand.
Interestingly, the Tel Aviv market is experiencing a somewhat different trajectory. While rents nationwide have risen, Tel Aviv’s rental market is encountering resistance, partly due to exceptionally high home prices and extensive construction projects that increased available rental units, slightly easing rent pressures in this major city.
Government Measures to Address Market Stability and Affordability
In the face of a growing affordability crisis, the Israeli government has introduced several policy initiatives aimed at stabilizing the housing sector. Notably, the government increased the Value Added Tax (VAT), a tax levied on real estate transactions, from 17% to 18% starting January 2025. This policy change directly contributed to the sharp fluctuations in sales activity observed in late 2024 and early 2025.
Recognizing the affordability crisis, the Ministry of Construction and Housing unveiled a strategy to boost the availability of affordable long-term rental housing options. This new initiative aims to ensure that the property market better serves the needs of Israeli residents, focusing on accessibility for families rather than solely favoring investors. The strategy includes potential regulatory measures designed to encourage long-term rental contracts and to regulate investor participation in the housing sector.
In parallel, the Bank of Israel, the nation’s central banking authority, is considering tightening mortgage lending criteria to stabilize the market and prevent excessive financial risk. New banking regulations, anticipated to roll out soon, would require higher capital reserves for banks offering home loans, as well as stricter mortgage lending limits to prevent an overheated real estate market.
Additionally, new standards regulating real estate brokers came into effect this month, designed to professionalize the industry, strengthen consumer protection, and enhance transparency in property transactions.
New Developments and Major Projects Despite Market Challenges
Despite market cooling indicators, several major construction projects and development initiatives are moving forward. Notably, Jerusalem is preparing for a significant urban renewal project, which involves replacing older, low-rise residential buildings with taller, more modern structures. The ambitious development highlights continued developer optimism, particularly within Jerusalem’s upscale housing segment.
Furthermore, Israel’s government remains dedicated to rebuilding communities that sustained extensive damage during the conflict in late 2023. Detailed plans have recently been announced, specifying timelines and financial commitments for the restoration and reconstruction of affected neighborhoods, particularly near Gaza, enabling displaced families to return to their homes in the near future.
Industry experts and stakeholders recently convened at the prominent “City of Real Estate” summit in Eilat, which addressed the industry’s current state, future challenges, and investment opportunities. Discussions emphasized that, despite the slowdown, ongoing demographic shifts and sustained interest from foreign investors are likely to eventually balance the current oversupply in the market.
In the politically sensitive arena of settlement construction in the West Bank, the Israeli government recently announced tenders for roughly 950 new residential units. While this move aims to accommodate growing population pressures, it also drew immediate international scrutiny, underscoring the complex political dimensions shaping aspects of Israel’s housing market.
Overall, this brief period in March 2025 presents a nuanced picture of Israel’s real estate landscape. While data suggests a short-term cooling, underlying factors like population growth, strategic government interventions, and international interest indicate that the market remains resilient, if temporarily subdued.
