Economic Report: All Systems Up - Including Housing Prices
- The Israeli economy continued to grow in the review period - January to April 2011. Specifically, investment, private consumption, imports and exports all grew rapidly.
- The unemployment rate fell to 6%, among the lowest in the past 25 years, and the employment situation continued to improve.
- Demand for apartments and activity in the construction industry continued to grow. The steps taken to reduce the demand and increase the supply of houses have still not made a sufficient impact, and house prices continued to increase rapidly, although at a slower pace than in 2010.
- Inflation exceeded the target throughout the review period, particularly due to prices of housing, transportation, and food.
The unemployment rate was 6 percent in the first quarter, a similar level to that prevailing prior to the outbreak of the economic crisis, and among the lowest in recent decades. The continuing improvement in employment was also reflected in an increase in the number of full-time positions and a decrease in the number of part-time positions. The participation rate in the labor force decreased slightly in the first quarter, but remained high.The demand for apartments and activity in the construction sector continued to expand in the review period. The number of mortgages increased, apartment prices grew more rapidly than rental prices, and the number of apartments demanded grew. The number of building starts and investment in residential building increased.
At the same time, the shortage of skilled workers in the construction industry continued, and building completions slowed down. The steps taken to reduce the demand and increase the supply of apartments have still not made a sufficient impact, but it appears that the rise in the interest rate has reduced the demand for apartments for investment purposes. Housing prices increased by 14% over the past year, as opposed to 20% for 2010 as a whole.
Inflation in the review period continued to be high, and exceeded the inflation target throughout the period. Inflation expectations were also high, but approached the inflation target after the Bank of Israel raised the interest rate in April by a surprising 0.5 percent. The high inflation rate was impacted mainly by the rise in prices of privately owned apartments, transportation and communications, food, and fruits/vegetables.