Car and housing prices continue to rise
Israel’s vehicle industry is preparing for a wave of price increases following Passover. At the same time, Bank Leumi has published a survey pointing to a rise in housing prices by 9%-13% this year.
Usually, prices of new cars rise at the start of the year. But car importers claim that price rises in the second quarter this year stem directly from price hikes by most car manufacturers as a result of the Russia-Ukraine crisis.
“Car manufacturers are now facing a significantly different and higher production cost base due to the sharp rise for factories in the world in recent weeks in energy prices, raw materials of all types for cars and price rises for land and sea transportation and inflationary salary pressures,” a large car importer told Globes.
The continuing shortage of new cars worldwide, which worsened following production disruptions in China, allows manufacturers to pass on price rises to importers “without bargaining,” according to sources in the car industry. In addition, shipping costs have doubled from about $100 per cubic meter in the second quarter of 2021 to about $200 per cubic meter today, the sources said. Shipping costs alone add thousands of shekels to the price of a car.
So far, only the Lubinski Group, which imports Peugeot, Citroen, Opel and MG cars, updated its price list at the beginning of April, with the price of popular models rising 2%-10%. Other importers are also considering price rises on cars in the coming few weeks, including hybrid and electric vehicles.
The strength of the shekel has acted as a shield, preventing sharper price rises, but they are inevitable nevertheless, according to sources in the car industry.
Regarding the housing crisis, Finance Ministry officials have been holding meetings over the past few weeks with officials from the Israel Lands Authority and the Construction and Housing Ministry to advance Finance Minister Avigdor Liberman’s new housing plan, which is due to be presented officially next month.
The talks began under the heavy shadow of the last Housing Price Index reading for 2021, which showed a rise of 2.3% in the December-January period, compared with November-December. The latest reading for January-February was up 1.8%, compared with December-January, but it put an end to the hopes expressed by government ministers, Liberman chief among them, that home prices would rise by just 6% this year.
Last week, just days before the release of the latest index figures, Bank Leumi published a survey by economist Alon
Kol Kreis, according to which housing prices in Israel will rise 9%-13% this year.
Furthermore, the last four Housing Price Index readings indicate an annual rate of increase of 24%. That rate raises considerable concern that the government’s policy is inadequate. Government officials also believe the current policy is mistaken, and that there has to be a change from what happened in the second half of last year.
Demand driving rises, not supply
The statistics for building starts indicate that copying and pasting parts of previous housing programs is no longer enough. The government came into power last year when the pace of building starts was similar to that of the previous two years, which was not bad. The second half of last year broke records, bringing buildings starts to numbers not seen for decades.
Nevertheless, government sources say this is not what will bring down housing prices, and the claim that “there’s a housing shortage” is weak. Although buyers are mainly falling on new homes, the stock of unsold homes in the hands of the contractors, which represents the supply of new homes, ranged between 44,000 and 47,000 last year.
Accordingly, senior government officials believe the rise in prices has much more to do with demand than with supply. All agree that 2022 will not see last year’s record sales volumes, while the pace of construction is expected to remain similar. Therefore, there is no concern over housing supply, and that is not what the government should be dealing with, they say.
According to these officials, if the aim is to cool the market down, demand rather than supply should be the focus of policy. How can demand be targeted? Raising the purchase tax for investment buyers and raising interest rates are part of the
attempt to do that. It seems, however, that these measures are only partially effective, and they are not expected to affect prices in the immediate future.
Bank Leumi believes that although prices will not fall in the coming year, demand will moderate, and in comparison with the peak year of 2021, in which there were 151,000 transactions, transaction volumes will decline. This will be a consequence of the rise in purchase tax for investors and the change in monetary policy by the Bank of Israel. Last week, the central bank raised its interest rate from 0.1% to 0.35%, and Bank Leumi estimates that the rate will reach 0.75% by the end of 2022.
Bank Leumi does not see the latest government subsidized house-purchase scheme as having any quick effect on prices, and there will be no more lotteries for discounted housing in prestigious locations such as Tel Aviv, Herzliya and Ra’anana. Those currently taking place in Tel Aviv are a leftover from the “Buyer Price” scheme.
In general, Bank Leumi finds in its survey that although demand for housing will decline this year, it will still remain high, and prices will rise. It sees price rises moderating from next year on.
“In the coming year, demand pressures will weaken somewhat, mainly because of the expectation of a slowdown in sales,” Bank Leumi said. “All the same, in our view, this slowdown will be limited, and home prices are still expected to rise by 9%-13% over 2022.
“This is because a decline in demand generally tends to affect home prices with a delay. Many contractors will not rush to cut prices in the face of lower demand, when they consider the fairly low stock of unsold homes held by them at the end of 2021. The general rise in the rate of inflation in the economy this year also supports a rise in home prices.” (Globes/TNS)