Interest rates are dropping: Is it time to invest in apartments?

The million-dollar question arises: With the announcement of a 0.25 percent decrease in the Bank of Israel's interest rate, bringing it to 4.5 percent, apartment buyers and investors who have been hesitant due to consecutive rate hikes since April 2022 have numerous queries.

Will this stimulate the housing market? Is it the right time to invest in apartments, or should we anticipate more declines in the coming months?

Here's my take: While the decrease may not be significant, it serves as a wake-up call for the housing market.

From my market experience, I always advise against buying properties when they are cheap. This rule of scarcity has consistently proven true in the past. People start taking action once prices begin to rise, and sales offices become crowded. Even Jews from various parts of the world, sensing the shifting market dynamics, will make use of the interest rate decrease to purchase properties in Israel.

In contrast to the influx of Russian immigrants in the 1990s, these individuals are established Jews who have the means to afford apartments. They may not need them immediately for residence purposes, but they view them as a safeguard for unforeseen circumstances in the future. This will decrease the supply of apartments held by developers and make them available to the Israeli public, resulting in an uptick in real estate prices.

Can we expect more interest rate decreases in 2024?

We are all familiar with the consequences of interest rate hikes by the Bank of Israel on the real estate market, leading to a crisis. In some cities, we have witnessed price declines for the first time in a decade. While this may seem positive on the surface, in a market with high interest rates, even developers who took advantage of the situation are facing challenges, and construction has slowed down. 

The primary issue currently is the lack of supply to meet the demand, which is a recurring scenario in Israel. We need additional housing to accommodate the projected population growth until 2040, which is estimated to reach around 13 million people. We are not there yet. 

The past year has been the most challenging in the history of Israeli real estate, starting with the interest rate hikes and concluding with conflicts. The prime minister, who has secured another term, now has the opportunity to make beneficial decisions for the economy by finally lowering interest rates. It is reasonable to assume that in the future, probably in 2024, further reductions may occur. 

While not expecting a significant decrease, perhaps only by another quarter or so, it is safe to say that the housing market is gradually recovering.