Israel’s real estate industry made headlines in 2025, especially the residential market. The Bank of Israel’s restrictions on 20-80 deals (down payment of 20% and 80% on completion) expressed the true picture of sales and frozen demand. Developers, for their part, launched creative financing campaigns, but these failed to reduce the supply of apartments, which had reached record levels, which gradually began to cause a decline in home prices. At the same time, the first interest rate cut in 18 months and the convergence of inflation towards the target also led to changes in the mortgage mix.
As 2025 ends, “Globes” examines three major trends that changed in the real estate industry over the past year, and forecasts what will happen in 2026.
Supply peaks and financing deals are more sophisticated
2025’s main event was in March, when the Bank of Israel restricted 20-80 and 10-90 deals. The Bank of Israel’s move created a stir in housing market, with the deals driving demand mainly from first-time home buyers, who were suddenly able to purchase an apartment with equity of only 10%.
The effects of the restrictions were not long in coming and were also reflected in the data. By October 2025, the number of unsold apartments was 83,577, according to the Central Bureau of Statistics. Although this is a slight decrease from September, these are still record levels for unsold apartments. The Central Bureau of Statistics also reported, there has been a new increase in construction starts and building permits compared with 2024, so the high supply of apartments will continue in 2026.
Faced with the inventory of unsold apartments and the Bank of Israel restrictions, developers have tried everything in their power to increase sales, and billboards are filled with ads for sophisticated promotions. Rotshtein Real Estate launched an end-of-year campaign allowing buyers to postpone the mortgage payments for up to six years from signing. Av-Gad launched a campaign to trade-in an old apartment for a new one, and Aura launched an “Apartment with Security,” allowing buyers to cancel a contract six months before moving into a new apartment, if the price falls.
Forecast for 2026: Meitav’s chief economist Alex Zabezhinsky says, “The peak we are seeing in building starts as well as the high volumes of total apartment sales is unusual. Therefore, I estimate that in 2026, contractors will have no choice but to stop the pace of construction starts in order to reduce the gaps.”
Home prices have fallen for eight straight months
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The dynamics between weak demand and high supply also impacted home prices, with the home price index recording an eighth straight monthly fall in November. This is the longest streak since the period between March and October 2023, with the cumulative fall of 2.6%, in annual terms nearly 4%. The index of new apartment prices in the free market (excluding the cost to the tenant), recorded a sixth straight monthly fall, with a cumulative fall of 1.8% and in annual terms about 3.5%. According to Phoenix estimates, if the housing price index also falls in December, it will make the monthly price fall streak the longest since 1994.
Phoenix chief economist Matan Shitrit says, “When you take into account the stagnation on the demand side, alongside supply that is at historic highs, the overall picture continues to support a continued decline in housing prices. Although interest rates are expected to continue to fall, given the path of interest rates as currently priced in the markets, this is not an interest rate environment that will be sufficient to revive demand, especially due to a significantly lower level of affordability compared with the past. Bottom line, in our assessment, a cumulative decline of at least 6%-8% in housing prices cannot be ruled out looking ahead a year.”
Inflation and interest rates have changed mortgage mixes
The Bank of Israel interest rate, which began to climb in 2022, led to an increase in the amount of monthly mortgage repayments in the last three years. Thus, in 2025, the average monthly repayment per household increased by more than NIS 1,000. As a result, there was a significant increase in mortgage payment arrears in the past year, with the volume of arrears in the months between August and October rising to a new record and exceeding the NIS 4 billion mark.
At the same time, in 2025, there was a significant change in mortgage mixes, as mortgage borrowers gave up on fixed-rate linked interest rates and opted for non-linked fixed-rate tracks. This is due to the uncertainty surrounding the inflation rate in Israel (2.4% annual rate, as of November 2025), which began to converge towards the central bank’s stability target after the ceasefire with Hamas.
Avi Yusupov, Deputy Chairman of the Mortgage Advisors Association says, “I estimate that as interest rates fall in 2026, mortgage borrowers will continue to prefer the unlinked fixed interest rate route. At the same time, we are also expected to see more demand for the prime interest rate route, which, as mentioned, is expected to become cheaper as interest rates fall.”
Published by Globes, Israel business news – en.globes.co.il – on December 24, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
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