Israel's housing market was the third hottest in the world during 2009, according to an international house price survey.
The Global House Price Index, compiled by the multinational property agency Knight Frank, showed that house prices in Israel increased more than in any other developed country except Hong Kong and China.
According to the survey, prices in Israel increased by an average of 21.3 per cent in the course of 2009, compared to a 3.4 per cent increase in Britain and a 3.1 per cent decrease in America.
Economists estimate that the Israeli figure, drawn from information provided by Israel's Central Bureau of Statistics (CBS), translates to an increase of around 17 per cent in real terms.
The average price of an Israeli three-bedroom home at the end of 2009 stood at NIS 1 million (£182,000). Increases were sharpest in the country's centre, especially in Tel Aviv, where the average three-bedroom home cost NIS 2.2 million (£400,000), compared to NIS 1.7 million (£309,000) at the end of 2008. The price increase during the economic turndown has surprised experts. According to Shlomo Maoz, chief economist at the Tel Aviv investment house Excellence Nessuah, "If you look around the world it doesn't make sense that one room in Beersheba is more than a house in some places in America."
Danny Ben-Shahar, a researcher on the housing market from the Faculty of Architecture and Town Planning at the Technion, said that prices at the end of 2009 were around 10 per cent higher in real terms than his long-term forecasts would have predicted.
He believes that the global economic crisis has actually spurred the increase. In January 2009 the Bank of Israel slashed interest rates to 1 per cent and then again in April to an all-time low of 0.5 per cent, in a bid to ease the recession. Another effect of the crisis, he said, was to make people disillusioned about other investment options and turn en masse to property.
London-based Kate Everett-Allen, a Knight Frank associate who helped to compile the Global House Price Index, said that Israel has a classic supply-and-demand imbalance.
The country has a high number of purchases by wealthy foreigners (though less than in the past), a high number of second home purchases, strong immigration - and a construction programme which has struggled to keep pace with demand.
Against "a backdrop of good economic fundamentals, low interest rates, healthy GDP and good employment levels", prices rose, she said.
Some experts believe that the rapid increase bodes badly.
"I think this is a bubble - certainly it's a bubble," said Mr Maoz. "I wouldn't put a penny in an Israeli house as an investment."
He believes that prices could be subject to "10 per cent vanish at least, at any moment".
More reserved in his predictions, Dr Ben-Shahar "cannot say that there will be a collapse," but "can definitely expect that at some point, and I don't know if tomorrow or in two years, we'll see a change in the trend."
He means that prices will "decrease somewhat" and then stabilise.
But others believe that talk of bubbles forming and bursting is premature. Vered Dar, chief economist at Psagot, Israel's largest investment house, said: "People are saying this makes a bubble but I'm saying it's only 12 per cent [price increase] in the last decade."
She views the recent surge in prices as a case of the Israeli housing market undergoing "long overdue" increases, with prices rising relatively slowly between 2000 and 2008.
She added: "Even if this turns out to be a bubble, which I don't believe, bubbles don't burst so easily."