After a challenging 2025 for Israel’s housing market, real estate professionals are cautiously optimistic for 2026, predicting a gradual recovery that will play out differently in various parts of the country.

Israel’s historically red-hot real estate market cooled through much of last year, due in large part to uncertainties related to the two-year war in Gaza, as well as high interest rates, high prices and a record supply of unsold new housing.

In 2026, Israel is hoping for a post-ceasefire jolt to the economy, renewed buyer momentum and a gradual easing of interest rates. However, the shekel’s strength against the dollar, currently near a 30-year high after rising some 18% over the past year, is hurting demand by overseas buyers, and there are more new homes than buyers in some areas, tamping price inflation.

“At this point right now, not so many buyers have returned to the market, so customers still have room to negotiate on prices,” said Shirley Werner of the Remax Ocean Realty in Tel Aviv. “The market is still relatively cool and sellers are more flexible. But when things heat up — which I believe they will in 2026 — the negotiating edge will shift back to the sellers.”

Housing prices declined in eight out of 12 months of 2025, according to official data from the Central Bureau of Statistics. Over the course of the year, home prices rose a negligible 0.4%, after showing annual growth of 7.8% at the beginning of the year.

But the picture on the ground is more nuanced, and increasingly divided by city lines. In Jerusalem, prices rose 9.6% during the last 12 months, while in Tel Aviv, prices dropped by 1.9%.

In Jerusalem, prices will continue to rise faster than inflation for years to come, because demand will always outstrip supply, said Nachi Paris, owner of Nachi Realty in Jerusalem.

“Every Orthodox Jew in the world that can afford it wants to have an apartment here,” although some projects in the outskirts of the city are still relatively affordable, Paris said.

In contrast, Tel Aviv is filled with a glut of new luxury homes under construction, and developers are under pressure to cut prices while buyers wait for better deals, Werner said. Fear of overpaying has replaced fear of missing out.

“There’s a mentality in the market now that it’s best to wait for the market to bottom out so you can catch a better deal,” she said.

Reading the fundamentals

Many home buyers are still looking for clarity after years of roller-coaster peaks and valleys in the market.

Price levels briefly stagnated in 2018 after doubling over the previous decade, but 2019 saw a healthy 4% rise in average prices across the country. In 2020, prices rose about 5% after the initial shock of the coronavirus pandemic brought the market to a standstill in March and April. The following two years saw annual growth levels of 13-15% as near-zero interest rates and a post-pandemic surge created an environment of hypergrowth.

In 2023, that began to tail off, as the Bank of Israel raised interest rates to as high as 4.75%. After the Hamas attack of October 7, 2023, shocked the nation and disrupted the economy, the total number of real estate deals declined by about 30% for the year, and prices inched downward by about one percentage point.

Prices rose again in 2024, by 7.8%, as building prices rose and buyers adjusted to a new normal, but in 2025, demand began to sputter. The burdens of an economy struggling in its second year of war, new limits on financing offers, and a growing inventory of homes under construction created an atmosphere where buyers were hesitant to commit.

“When people see in the news that prices are going down, it creates a mentality,” Werner said. “It’s all about market psychology.”

Meanwhile, as demand teeters, supply is up. Israel has a record 86,000 new homes available for sale, according to the CBS, and in some neighborhoods, the number of units under construction seems almost endless. In Tel Aviv, many developers offer unpublished discounts to interested buyers, and in some neighborhoods, purchase prices have already fallen by as much as 15-20%, agents say.

Meanwhile, the strong shekel is a serious obstacle for overseas buyers, Paris said. The Israeli currency currently trades at about NIS 3.11 to the dollar, just a bit off a 30-year high that makes buying even more expensive for US clients.

“It used to be that most of my American clients were people who could afford to keep their primary home in the United States and buy another property in Israel,” Paris said. “Now, I’m seeing more interest from middle-class homeowners who can afford only one home, so they are selling their homes there in order to buy in Israel.”

Meanwhile, the interest rate is still high at 4%, even after it was cut twice in recent months, as mortgage math remains a sobering exercise for would-be buyers. Bank Hapoalim said last month it expects two more rate cuts over the course of 2026 that would bring it to 3.25% by the end of the year.

Strong demand in Jerusalem

In Jerusalem, a limited supply of homes and strong foreign demand mean that prices will continue going up for the foreseeable future, Paris said. And in the Holy City, demand is often emotional and, in many cases, ideological.

“Whatever you buy for market value in the city of Jerusalem will be worth more a year from now,” Paris said, insisting that prices in the capital will always rise faster than inflation.

While Jerusalemites complain about what seems to be construction everywhere throughout the city, there are actually fewer apartments being built than are needed, Paris said. Even large urban renewal projects — where, for example, 200 apartments are demolished to make room for 600 new units — are not enough to satisfy demand, he said.

“It seems like there’s a lot of building because there’s a crane or two on every block, but that’s really not a lot,” Paris said. “There’s still much higher demand than supply.”

However, it does mean that deals can still be found in Jerusalem’s outlying neighborhoods.

“In the high-demand areas in the center of the city, homes are more expensive and often have old infrastructure,” Paris said. “In places like Har Homa, you can get new buildings with elevators, parking, protected rooms and storage for under NIS 30,000 [$9,700] per square meter. Young couples can buy a nice three-bedroom for NIS 2.4 million [$777,000], or a four-bedroom for NIS 3 million [$970,000],” prices that are considered affordable within the Jerusalem context.

Immigrants from English-speaking countries, including foreign buyers planning to live there for at least part of the year, may represent more than 30% of the buyers in these areas, he noted.

Rental prices in central Jerusalem neighborhoods have soared in recent years, and desirable apartments are often snatched up as soon as they become available, agents say.

At the same time, the market for expensive luxury properties has picked up in recent years, as more wealthy Jews consider immigrating to escape rampant antisemitism overseas.

Getting back on track in Tel Aviv

Meanwhile, in Tel Aviv, where construction is ongoing at a more intense pace than in Jerusalem, prices have been dropping slowly. Supply is outstripping demand at a time when many have already been priced out of the market.

But demand began to pick up shortly after Israel reached a ceasefire agreement with Hamas in October, agents said, and there is a new air of optimism in the market. Prices rose in November for the first time in eight months, and Werner believes a reset in the market is underway.

The ceasefire and lowering of interest rates “changed everything,” Werner said. “It gave the sense that there’s light at the end of the tunnel. Buyers suddenly began to feel pressure to move before prices started rising, and people who were sitting on the fence are getting ready to make a move.”

The coming year will see a recovery, but not another overheated market boom, Werner predicted. “We’ll see a change in direction guided by realism,” she said. “Clients are willing to pay high prices for truly excellent properties, but they won’t overpay for mediocre apartments.”

Major infrastructure projects like the city’s new subway system will increase long-term demand in some of the city’s less desirable areas and ease commuting woes in the city’s notorious traffic, Werner noted.

And the city’s rental market remained strong throughout the war, as people with affordability concerns chose to keep their options open and rent.

“But the momentum is shifting, and there is a window that is now open,” she added. “The best opportunities will belong to those who are ready to move now.”

More distant horizons

Meanwhile, buyers willing to look outside the usual hotspots may still find opportunities available.

Ashkelon, located on the Mediterranean coast south of Ashdod, is a great city that is still relatively cheap, Paris said.

“Ashkelon is about 20% cheaper than Ashdod, which is just a few miles north, mainly due to the threat of rockets from Gaza,” he said. “But now that Hamas has been disarmed of rockets, I think it’s a great investment.”

English speakers are also buying homes in places including Netanya, Modiin, Beit Shemesh, Pardes Hana, Karmiel and Carmei Gat, agents have noted.

Homes in Beersheba and its environs are also expected to rise in the coming years with the transfer of most of the IDF’s information and communication technology operations to the “capital of the Negev.” The government has also approved more than NIS 1 billion ($320 million) of investment in the city’s infrastructure, including a new light rail network.

Meanwhile, the government is investing billions of shekels in rehabilitating and developing towns and kibbutzim in the areas around Gaza destroyed in the October 7 attacks, as well as in northern communities targeted by Hezbollah. These investments will upgrade all aspects of life in these peripheral communities, with the potential to double their populations, Finance Minister Bezalel Smotrich has said.

In October, the government approved a new national housing plan aimed at accelerating construction, strengthening local authorities and expanding the supply of affordable homes across the country, as part of an ongoing effort to curb housing prices and ensure access to housing for all citizens.

Looking ahead, the availability of good financing options is a factor that will directly affect the market’s recovery, according to a report by the real estate marketing company Dara. Promotions that allow buyers to put down only 15-20% of the purchase price when buying on paper “will continue to play a central role in buyers’ decisions to purchase an apartment,” the company said.

To both Werner and Paris, it is clear that now is the time to buy. In Israeli real estate, hesitation has historically proven expensive, they said.

“People who have bought are all happy that they did, and everyone who has not bought yet regrets not doing so,” Werner said. “If you keep waiting, you’ll never find a better time.”

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