Under Pressure: The Impact of Short-Term Macroeconomic Dynamics on Israeli Public Residential Real Estate Firms

This study investigates the pathway through which short-term macroeconomic dynamics impact the financial performance of publicly listed residential real estate firms in Israel, addressing a gap in the literature that often focuses solely on macro-level housing market aggregates. We employ Structural Equation Modeling (SEM) on 190 firm-year observations from 38 companies spanning the high-volatility period of 2020–2024. The model, which demonstrated strong overall explanatory power, maps the linkages from core macroeconomic inputs (interest rates, construction costs) to corporate profitability. Core results reveal a stark divergence in the efficacy of macroeconomic tools: while Central Bank interest rate hikes powerfully suppress transaction volumes, corporate profitability is primarily driven by the positive and significant transmission of Construction Input Index (CII) inflation to housing prices. Crucially, the study interprets these findings in light of Israel’s unique institutional framework, specifically the widespread contractual indexation of pre-sale agreements to the Construction Input Index. While not directly measured as a quantitative variable within the SEM, this mechanism offers a plausible institutional explanation for how cost inflation and market price appreciation are translated into enhanced corporate performance by acting as a risk-transfer conduit that shields developers from cost volatility. Furthermore, maintaining a strong capital structure (higher equity/assets ratio) is shown to be vital for firm resilience. The findings suggest that effective policy aimed at price moderation must target structural supply rigidity and rising input costs rather than relying exclusively on demand-side monetary interventions.