When we say “real estate bubble,” we immediately think of the American bubble. We think of years through which housing prices rose and rose, only to suddenly collapse, leaving people impoverished. We think of the collapse of the financial system that financed the real estate bubble. We think of the huge segment of the public that believed housing prices could only go up, and of the banks and credit rating agencies which invented the financial tools that sowed such tremendous destruction in the global financial system.

And so, when we talk about whether there is a bubble in the Israeli property market, we automatically wionder whether housing prices will continue to rise or whether they will drop sharply; whether Israeli lenders will meet their payments or whether there will be a large wave of insolvency; and whether Israeli banks are prepared for unemployment, recession and a wave of American-style mortgage defaults.

Herein lies the fundamental mistake made by economists, buyers, bankers and policy makers in the Israeli housing market. A bubble doesn’t necessarily involve swift price increases followed by a drop and huge losses to lenders.

There are other types of bubbles, too, the kinds that don’t burst one day on the stock exchange or in the market, but gradually spread and bring down a large group of people.

Such is the real estate bubble that has developed in Israel during the past three years. No one can say with certainty whether one day prices will collapse, whether banks will fail and investors will lose tens of billions. But regardless, the current prices of houses and rentals are causing tremendous damage to Israeli society as a whole.

Attempting to predict housing prices is as certain as attempting to predict the stock market. We have failed at it more than we’ve succeeded. Few people anticipated five years ago that we would enter an era in which, all over the world, including in Israel, there would be near-zero real interest rates over such a long period, and that this would combine with other factors to propel real estate prices But still, we must send a message to the decision makers and the general public regarding the long-term damage caused to Israeli society every year that tens of thousands of Israelis purchase homes with large mortgages that devour an increasing percentage of their disposable income