UBS lowers Tel Aviv housing market to moderate bubble risk

Tel Aviv’s housing market has been reclassified from the “yellow” category of overvalued bubble risk to the “gray” category of moderate risk bubble in the UBS Global Real Estate Bubble Index 2024. Two years ago, Tel Aviv was in the “red” high bubble risk value category.

The report noted that “Due to falling interest rates and a worsening housing shortage, real house prices in Tel Aviv tripled between 2002 and 2022. Bubble risks increased in 2022 as price levels in the city were decoupled from the rental market and prices in the rest of the country. Household incomes were not keeping up with prices, making home affordability difficult.”

The report continues: “It is not surprising that rising mortgage rates ended the housing boom two years ago, shifting demand to the rental market. Mortgage growth has been a quarter since then. As a result, real prices have fallen by 10% by the end of 2023. However, despite safety concerns, residential transactions are starting to recover in 2024.”

UBS warns: “On the latter issue, leading indicators suggest that the conflict is starting to weigh on the economy, but with inflation still remaining elevated, the Bank of Israel’s room for monetary policy support is limited. Attempts by various sides to broker a ceasefire have so far been unsuccessful, raising the possibility of a protracted conflict. The growing economic damage raises the risk of spillovers to the local property market. Price increases are being supported by sluggish construction, while some demand is being driven by fears of being left behind. The bubble risk is therefore moderate.”

Tel Aviv ranks 13th in terms of bubble risk out of 25 cities analyzed by UBS.

Analysts at UBS calculated that it would take an average skilled worker 12 years’ worth of salary to buy a 60-square-metre apartment in Tel Aviv.

Published by Globes (en.globes.co.il), an Israeli business news site, on September 24, 2024.

© Copyright 2024 by Globes Publisher Itonut (1983) Ltd.