Where Interest Rates Stand Now and Where They Are Heading
After maintaining the rate at 4.5% through ten consecutive decisions, the Bank of Israel finally moved in November 2025 with a cut to 4.25%, followed by another reduction to 4.0% in January 2026. A pause came in February 2026, but the trajectory is clear: at least two more cuts are expected during 2026.
The Bank of Israel's Research Division projects an average rate of 3.5% in the fourth quarter of 2026, which would bring the prime rate down to 5.0%. This forecast is supported by capital market expectations and private economists. Inflation is expected to moderate to 1.7% in 2026, giving the central bank room to continue easing monetary policy.
It is worth noting that rates are falling not because of real estate market conditions specifically, but due to broader macroeconomic factors including moderating inflation, a strengthening shekel, and projected GDP growth of 5.2% in 2026. These conditions support continued cuts but could shift if the security or geopolitical situation changes.
- Bank of Israel rate: down from 4.5% to 4.0% in two consecutive cuts
- End-of-2026 forecast: 3.5% base rate, 5.0% prime rate
- Inflation projected at 1.7% in 2026, below the target midpoint
- GDP growth forecast: 5.2% in 2026 — a supportive environment for continued cuts
What This Means for Your Mortgage — Real Numbers
On a prime-rate mortgage of one million NIS, each quarter-point cut saves approximately 151 NIS per month. The two cuts already implemented save a combined 304 NIS monthly, which is about 3,650 NIS annually. If projections hold and rates reach 3.5% by year-end, annual savings could hit 5,000 NIS per million NIS of prime-rate debt.
For a typical Gush Dan mortgage of 1.5 to 2 million NIS, this means annual savings of 7,500 to 10,000 NIS. Meaningful, but not transformative on its own. Remember, these savings apply only to the prime-rate portion of your mortgage — fixed-rate components are unaffected by rate changes.
Mortgage advisors recommend a 2026 mix of approximately 50% fixed unindexed, 33% prime rate, and 17% variable (adjusting every five years). This blend captures rate-cut benefits through the prime component while maintaining stability through the fixed portion. Those who took mortgages at peak rates in 2023-2024 should seriously explore refinancing — the rule of thumb is that a gap of 0.75% or more from current market rates almost always justifies the switch.
- Savings of 151 NIS per month per million NIS on prime for each 0.25% cut
- Recommended 2026 mix: 50% fixed unindexed, 33% prime, 17% variable
- Those with 2023-2024 high-rate mortgages should explore refinancing
- Refinancing rule of thumb: a 0.75%+ gap from current rates justifies a serious review
The Gush Dan Market in 2026 — Record Inventory Meets Reviving Demand
The most important number for Gush Dan buyers is the unsold inventory. Nationally, contractors are sitting on approximately 84,000 unsold new apartments — an increase of over 60% in just three years. In Tel Aviv and Ramat Gan, it would take 5 to 6 years to sell the current inventory at present sales rates. New apartment sales in the open market plummeted 33.7% in 2025 compared to the previous year.
For buyers, this creates a powerful negotiating position. Contractors are offering aggressive financing deals including deferred payments, exemptions from construction cost index linkage, and contractor loans where the builder absorbs interest costs. Anyone shopping for an apartment in Gush Dan should leverage this market dynamic.
However, historical data provides a counterpoint: a one percentage point rate cut has historically driven apartment prices up by approximately 6.5% over roughly two years. This means the current window of relatively affordable prices may narrow as rates continue to fall and sidelined buyers re-enter the market. Economists describe this as a pincer movement — large inventory pushes prices down, while falling rates pull them up.
- 84,000 unsold new apartments nationally — a historic record
- 33.7% drop in new apartment sales in 2025
- Tel Aviv and Ramat Gan: enough inventory for 5-6 years at current pace
- Contractor incentives: deferred payments, index exemptions, builder-financed loans
Apartment Prices Across Gush Dan — What the Data Shows
In Kiryat Ono, average prices stand at approximately 30,000 to 32,000 NIS per square meter. A 4-room apartment sells in the 3 to 3.3 million NIS range, while 5-room units fetch 3.4 to 3.7 million NIS. Across the broader Ono Valley (Kiryat Ono, Givat Shmuel, Or Yehuda, and Yehud), closing prices rose a moderate 4% to 5% over the past year.
At the national level, apartment prices declined 0.5% in September-October 2025, with annual price growth slowing to near zero. In Tel Aviv and central Gush Dan, forecasts point to a potential 1% to 4% decline in new apartment prices. Yet demand areas in the Ono Valley are seeing price increases, driven by new projects and the upcoming Purple Line light rail.
This divergence matters: not all of Gush Dan behaves the same way. Areas benefiting from new infrastructure and urban renewal projects are holding or gaining value, while areas with excess new supply face downward price pressure.
- Kiryat Ono: 30,000-32,000 NIS per sqm; 4-room apartments at 3-3.3 million NIS
- Ono Valley: moderate 4%-5% price increase over the past year
- Tel Aviv and central Gush Dan: forecast 1%-4% decline in new apartment prices
- Investors need rates at 3%-3.25% to return to the market in significant numbers