Housing prices likely to drift higher next year

ISRAEL - In Brief 07 Aug 2016 by Jonathan Katz

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Recent economic indicators point to weak growth of 1.5% SAAR in Q216 (our estimate). Merchandise exports declined while imports increased. Private consumption indicators remain robust but slower than in Q116. Both chain store sales (3.9% SAAR) and debit card purchases (7%) up in Q216. Consumer confidence (according to Poalim index) remains elevated in July. This will support further PC growth, fueled by real wage growth and employment expansion. Despite attempts by MOF minister Kachlon to stem housing prices, prices will likely move higher next year. The brief episode of a price decline in 2000-2005 occurred as both the economy slowed and real rates spiked. Housing starts actually declined during those years (supply contraction). With rates unlikely to move higher in Israel before 2018 and the economy is fairly good shape, housing prices will probably continue to move higher. For this reason, it is unlikely that the BOI will loosen further. We have revised our inflation forecast down slightly to 0.7% NTM on the back of shekel appreciation and lower energy prices. Fuel prices declined by 4.5% this month pushing our August inflation forecast down to 0.0% m-o-m and -0.6% y-o-y (July -0.8% y-o-y, similar to June). The CBS business sentiment survey points to stability in July (18.6 similar to June), higher than ave1H16 (17.2). Private sector nominal average wages are up 3.2% y-o-y in May nominal A tight labor market and minimum wage hikes will continue to support wage growth, as well as some inflationary pressure especially n the service sectors.Real wages reached 4% y-o-y on pronounced deflation (-0.8% y-o-y), improving consumer purchasing power.In July, the BOI purchased ...