(photo credit: Uriel Messa)
“We find no evidence of a housing bubble as of August 2010. If there is a
bubble, it is in the early stages and is not yet seen in the data,” the Bank of
Israel said in a report released Sunday.
The report, titled “The housing
market in Israel 2008-2010: Are housing prices in a bubble?” was produced by
researchers Dovman Polina, Ribon Sigal and Yakhnin Yossi.
They noted that
home prices rose 35 percent in real terms between December 2007 and August 2010
- an average rate of 12% a year, well above their long-term growth rate. This
raised concern that the rise in home prices was disconnected from the market
fundamentals, and was based on expectations of capital gains and the development
of a bubble process.
The researchers examined home prices from the
perspective of the rent-income ratio and then based on a comparison of the
standard property pricing with the fundamental price, which is derived from
three different methods.
The researchers’ analysis found that while home
prices in August 2010 were somewhat higher compared with the long-term
fundamental factors, they did not deviate from levels in previous episodes.
Various measures found that the actual prices ranged between 3% below the
fundamental price and 10% above it.