The Supply Problem

srael’s housing market has been pulled in two directions for a while now. Buyers are cautious. Interest rates are still high by historical standards. The war added another layer of uncertainty. And yet, analysts at Lider, an Israeli investment research firm, are forecasting that home prices could rise by around 3% over the next 12 months. Here is why.

The Supply Problem

According to Lider, construction activity looks healthy on paper. Building permits reached 23,000 units in the first quarter of 2026 and 85,000 over the past year. Construction starts also remained relatively high at 18,000 units in the first quarter alone.

But Lider points out that the issue is at the other end of the pipeline. Completed units dropped to 15,800 in the first quarter, compared to 16,300 in the fourth quarter of 2025. There are currently a record 211,700 apartments under active construction, and the average build time is still 37 months. Lots of apartments on paper, but not enough that people can actually move into right now.

Demand Is Not Going Away

Lider estimates Israel adds roughly 60,000 new households per year. Factor in foreign workers and other demand, and they estimate the country needs between 65,000 and 68,000 completed units annually. That is very close to, and in some areas above, the current pace of completions. When finished supply is tight relative to demand, even a temporary price dip tends to stabilize and reverse fairly quickly.

Rents Are Already Signaling It

The rental market is heating up fast. According to Israel’s Central Bureau of Statistics, annual rent increases accelerated to 4%, up from 2.9% the previous month. For new tenants moving into a previously occupied apartment, the increase jumped to 6.8%, compared to 3.6% the month before. Lider notes that rents tend to reflect housing shortages faster than sale prices because tenants face the market every year or two while buyers can afford to wait.

Interest Rates Could Help

Annual inflation sits at 1.9% and core inflation at 1.6%, according to the Central Bureau of Statistics. Lider expects the May inflation data to support another 0.25% rate cut at the Bank of Israel’s next decision on July 6. Even a gradual reduction in rates improves mortgage affordability and could bring some buyers back off the sidelines.

Wages Are Rising Too

The Bank of Israel reports wages in the business sector are growing at around 6% annually, even in the current environment. Lider notes that rising wages support housing demand over time.

Bottom Line

Lider’s forecast of a 3% price increase is not a prediction of a return to the boom years. It is a modest correction in a market with a structural supply shortage, a construction pipeline that is not closing gaps fast enough, rising rents and rates that are likely heading lower. After a long period of buyers sitting on the fence, even a small improvement in mortgage costs and economic confidence could be enough to bring them back.

Source: Lider Investment Research, as reported by Bizportal, June 21, 2026. Read the original article here.