Despite the War – The Real Estate Boom Is Already Here
Yaki Schwartz, CEO of Harei Zahav Real Estate, in a special op-ed: “It is highly likely that the prolonged stagnation in the real estate market will break within a few months, as the fighting subsides and reserve soldiers continue returning home”
The impact of the war, which is expected to last for several more months, is being felt across the Israeli economy, with varying intensities in different sectors. The construction industry in particular had already been experiencing a slowdown in demand well before the war began.
In April 2022, the Bank of Israel started raising interest rates monthly to combat inflation. Over more than a year, rates increased by 4.65% before halting in May 2023. The shift from near-zero interest rates to significant levels has affected everyone, from individual workers to large corporations, impacting household mortgages and corporate financing costs.
This high-interest environment led to a decline in housing demand and slowed the advancement of supply by real estate companies. Simultaneously, in January 2023, Justice Minister Yariv Levin unveiled a judicial reform plan that sparked widespread, unprecedented protests in scale, duration, and intensity. These events contributed to uncertainty and undermined confidence among some potential homebuyers.
Following roughly 18 months of rising interest rates and societal disputes, the war introduced additional months of stagnation for the real estate sector. The extensive reserve call-ups have impacted both the workforce of real estate companies and potential buyers, disrupting supply chains from factories and subcontractors. Restrictions on the entry of construction workers from Judea and Samaria into Israeli cities and settlements further reduced the already strained labor supply. Efforts are underway to bring in additional foreign workers to address the shortages.
Construction has slowed on some sites and come to a complete halt on others. Some contractors and suppliers have faced operational and financial difficulties, with some potentially at risk of collapse. While the uncertainty and challenges in the sector are expected to persist in the near term, a significant resurgence is anticipated afterward.
The recent 0.25% interest rate cut announced by the Bank of Israel may signal that the recovery has already begun. It is highly likely that the prolonged stagnation in the real estate market will break within a few months, as fighting subsides and reserve soldiers continue returning home. Israelis want homes of their own, and many have been holding off on purchasing for nearly two years.
Demand is expected to grow for several observable reasons. First, interest rates have not risen since May 2023, and inflation slowed last month. Post-war economic slowdowns may prompt the Bank of Israel to further lower rates to stimulate consumption and support the economy, which could also increase demand for home purchases by making mortgages more affordable.
This aligns with the latest announcement from the U.S. Federal Reserve, which decided to maintain its interest rate, with expectations of rate cuts in 2024. This indicates a potential global trend reversal that will likely affect the Israeli market as well.
Another factor is the historical increase in birth rates in Israel following wars. Research by the Central Bureau of Statistics in 2019 found that Israel’s overall fertility rate rose by an average of 10% two years after the War of Independence. Similar increases were noted after the Six-Day War and the Yom Kippur War. Families planning for an additional child will require suitable housing, driving further demand.
Additionally, according to the Central Bureau of Statistics, 30,000 new immigrants arrived in Israel in 2023, compared to 10,000 Israelis who emigrated. This is the highest net immigration recorded since 2012. Rising antisemitism in Europe and on U.S. college campuses may further accelerate aliyah to Israel.
If the IDF achieves significant military success in Gaza, resulting in security and political changes that significantly reduce or eliminate the threat from the region, this will have widespread economic implications across all sectors. Investors will feel more comfortable investing in Israel, and Israelis will gain greater confidence to purchase homes nationwide, including in Ashkelon and the Gaza border region.
There is reason for optimism: from great darkness, we will emerge into great light. We will overcome evil and continue building and settling the land.
Yaki Schwartz is the CEO of Harei Zahav Real Estate