The Dollar Rate Effect

זכרון יעקבIn recent days, the dollar's exchange rate is the lowest in three years. What is the significance this low rate has on real-estate transactions in Israel?


For the past 30 years, real-estate prices in Israel are listed in dollars. The same goes for "second hand" sales and in most cases rental fees for the private and public sectors. In publicity ads for new project, you will find prices listed in dollars or shekels, but the fine print will always read "In shekels, linked to the daily representative dollar rate during payment". A summary of the last sentence would be - Dollars!


When the dollar rate increases, especially high increases over short periods, buyers are alarmed, claiming that an identical price in a higher dollar rate means that they must pay more shekels. When the rate is low, sellers immediately cry out claiming that they receive fewer shekels. In between, "clever" sellers use shekels to state the property's price, and smart buyers make bids in shekels, but those and the others usually return to dollar prices once its value trend shifts.


There's some justification to the buyers' claims when the dollar's value increases dramatically. Most buyers have not yet saved the property's worth, and they require mortgage that will be returned from their shekel based salary which is not linked to the dollar. Thus, when they take on a mortgage in shekels, their monthly return will be higher if the house was purchased under a high dollar rate.


Similarly it's possible to say that buyers profit when the dollar has a lower value, the lowest in years, since they will pay a lower mortgage on the same acquisition, and gain thousands of shekels, and their monthly return will be much lower than what they would have paid if they were to purchase the house several months beforehand.


And what about sellers? Do they lose money when the dollar rate is low? It's possible to say that in most cases the answer is no: most of the time, sellers do not lose money. In most cases, the seller "rolls" the money earned in selling a house to the acquisition of another house. If the house was sold in a low dollar rate, the new house will also be bought in the same rate, thus the low rate is meaningless. Some of the sellers will invest their returns in a low risk savings account ("Solid investment") until they purchase a house from the return. And what are low risk investments? Usually dollars. The property was sold in a low dollar rate? The dollars for the savings account will also be purchased under the same rate. The rate has no effect at all!


And indeed, the effect of the dollar rate on real-estate is very minute and relatively negligible to the effect of, let's say, the increase in mortgage interest rates. That's because a house is seldom sold for the price set by the seller in Israel, the dollar decrease will mostly be expressed by less flexibility from the seller's part and nothing more. Now, when the dollar rate is low, and the interest rates are low, it seems as though things aren't bad at all for sellers, and they're certainly good for buyers. Good luck!