Housing dynamics are likely to support price moderation

ISRAEL - In Brief 23 Oct 2022 by Jonathan Katz

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Housing dynamics support lower prices in 2023 New home sales declined by 4.6% m/m and by 47% y/y in August. This trend is expected to continue as mortgage rates have move higher. Weaker demand is expected as housing supply accelerates in 2023. Residential investments are extremely elevated as housing starts have surged in recently. The increase in housing inventory is likely to moderate housing rental prices, which are factored into the CPI. Some moderation in housing rental prices (we expect to increase by 3.2% in 2023 compared to present 5.3% pace) will support lower inflation of 2.1% in 2023. Consumer demand appears to be decelerating Chain store sales declined by 0.7% saar in June-August (trend data), following a decline of 0.4% in the previous three months. Credit card purchases (real) remained flat in June-August, although daily data from the BoI suggests some moderate growth in September. Slowing private consumption growth is the result of both purchasing power erosion, as real wages in most sectors have not kept up with inflation, as well as higher mortgage financing costs. This is indirectly reflected in softer consumer confidence, both in the Poalim index and the CBS index. Slowing private consumption growth will support lower inflation in 2023. Inflation: Much uncertainty remains regarding inflation in Q422, especially regarding whether the excise tax reduction on petrol will be cancelled on November 15 as planned. We assume so, and this will contribute 0.4% to inflation in November-December. Monetary policy: For the first time this year, the last rate hike decision by 0.75% was not unanimous. One MPC member voted for a more moderate hike of 0.5%. The Govern...