Whether it is due to the rising temperatures or to the recent seasonal spring cleaning – the real estate market tends to become much more buoyant in the spring and summer seasons. If you, or someone you know, are contemplating whether to buy/sell or rent, then read on before making any major decisions.
If you have financial constraints (e.g. a limited budget for renting and/or purchasing) instead of looking at the top two or three locations that Anglos migrate to, open yourself up to the many other places that also have thriving, albeit smaller, Anglo communities. Your housing costs whether they be rent in the short run, or a mortgage in the long run, can have a major impact on your monthly budget. The size of your home also impacts tremendously on overhead costs which you will want to manage carefully as part of your budget. It’s critical that you move to a community into which you can integrate not only socially and culturally, but also financially.
Rent vs Buy
Once you have made the first major decision of where to live, you then must decide whether to rent or buy, and what to rent or buy.
Justifiably many Anglos that I talk to (olim and young couples especially) are very disappointed with the state of the Israeli real estate market which is more expensive than many western cities when it comes to buying a home.
Over the past few years, more and more families have been priced out of the property market. Young couples, olim and even veteran Israelis find it increasingly difficult to afford an apartment in their chosen areas of the country (near family, friends and employment). After such consistent growth in prices what can we expect in the future?
My constant claim over the last few years has been that when prices rise consistently to a level higher than that which people can afford (based on average salary levels), something eventually has to give. Either prices end up plateauing and there is little price appreciation for a number of years while inflation erodes the real value of prices, or there is a much larger adjustment in the value of real estate, as we saw in the USA and many other countries worldwide in 2007-9. Statistics recently released indicate the first quarterly decrease in real estate prices in Israel in a very long time. While Israeli statistics can be confusing and contradictory depending on who is releasing them, I do believe this is the beginning of a larger trend. But does that mean you should wait and waste all that money on rent?
If you can afford to buy at current levels, and you’re not considering the purchase primarily as an investment – then fine, buy, especially if you are comfortable with the reasoning that what happens to the value of your investment is less important than the benefit you will gain from owning your own property. As long as your mortgage is not structured with too large a component tied to a variable interest rate (that will go higher as interest rates rise – and they will start rising as some point over the next 25 years …), you probably should be fine. (I grant you that this was a gross over-simplification, but it will have to do for the purpose of this brief article). However, if you’re stretching it financially even just a little, banking on all the stars aligning so that you might be able to afford your mortgage, then that’s a completely different story.
And to that equation, you can now add the government’s current plans and concerted efforts aimed at reducing property prices. For years the government has been committed (at least in formal declarations) to reducing the value of real estate prices. But for various reasons all proposed steps were either vetoed or ineffective in lowering prices. You can put it down to a variety of causes including investors and the natural population growth creating a strong demand, with bureaucratic machinations from local authorities creating a lack of supply – the reasons don’t matter at this stage. But as mentioned above, recently we have been seeing that the changes are beginning to make a difference.
As this trend continues and we see a longer period of at least stable housing prices, the more hopeful I am that it will help break the local psyche which says that real estate prices only go up in Israel. In the long run, real estate prices in Israel have indeed appreciated, but that assumption can well be false in the short term (see the 2000-2006 period as an example). Prices go up but they can also go down. However, breaking this current mindset could be the most important element of the proposals as they give people a major incentive to slow down that purchase, reducing demand, which leads to reduced prices. If I were a first-time home buyer, I would think very carefully before buying now unless it was through a government subsidized program. Check the criteria as you, or your married children, might well be eligible to apply for an apartment at a reduced price.
There are those who view renting as a waste of money as there is no long-term benefit for the monthly amount spent. I won’t argue that perspective as there is truth in that statement but one needs to balance that perspective with not rushing into a purchase at the height of a very inflated real estate market.
I keep saying it to potential olim and to my veteran oleh readership. Unless you have very compelling reasons to purchase right now, think twice about buying at current prices which are beginning to show signs of slowing their increase and even dropping. Real estate is an investment and like all investments, what goes up can definitely come down.