Housing price falls in Israel set to gain momentum

After nine consecutive months of rise in the housing price index, prices fell in the latest index for August-September 2024, published by the Central Bureau of Statistics last week. Despite the median price decline of just 0.1%, combined with additional data published last week, estimates indicate that the real estate market is on track to return to its lowest levels in 2023.

The moderation in price increases began about six months ago. In six of the last seven indicators, the average price rise was lower than in the previous month. The exception was the June-July 2024 index, which was higher than May-June. So it is not surprising that this trend continues and slips into the negative.

From a broader perspective, over the past 10 months, the house price index has risen by 6.8%, but two-thirds of the increase was recorded in the first five months, and only a third in the last five months. This indicates that the rally has faded quickly.

Prices jumped at the beginning of the war

There was a significant jump in housing prices in the first months of the war – an event that would normally have been expected to lead to a market recession. Moreover, prices began to rise at the beginning of the war after eight consecutive monthly declines in the housing price index in 2023. So what happened?

It is estimated that the main factor is that Israelis began actively looking for apartments with security rooms, which was reflected in an increase in the purchase of new apartments and relatively new used apartments as Israelis sought protected spaces in their homes. Used apartments equipped with security rooms recorded greater price increases compared to new apartments.

However, in the end the economy will have its say, and the special circumstances of the war have more or less exhausted their influence on housing prices. High interest rates and rising prices are making it more difficult to buy apartments these days, forcing buyers to take out expensive mortgages. Now buyers are looking for slightly cheaper homes and getting harder deals.

For example, the average price of a four-room apartment in Beersheba in the third quarter decreased by about NIS 13,000 (to NIS 1.31 million) compared to the second quarter. A similar trend was also observed in Herzliya, Haifa and Rishon LeZion – where the average price fell by about NIS 150,000, to NIS 2.46 million. In Tel Aviv, the average price of four-room homes rose in the third quarter by NIS 40,000 (to NIS 4.87 million), and increases were also recorded in Ramat Gan and Netanya.

Roof contractors

Financing incentives and discounts offered by developers for under-construction housing have proven to be very successful in terms of increasing sales, breathing new life into a market that had been mired in slumber. But in recent months, contractors seem to have reached a ceiling they cannot break through, bringing the market to a standstill.

There is no accurate information about the 80/20 deals (80% loans, 20% equity) offered by developers, as they are not documented in an organized manner at all. Deals began at the end of 2022, and sales of new apartments fell to levels not seen since 2018, while the supply of new apartments was 40% higher than in 2018. This has prompted developers and banks to look for ways to get rid of large inventory. . . Not only does it postpone most apartment installments, but it also includes significant discounts.

The impact of these deals began to be felt in the second half of 2023. Within about a year, there was a 65% increase in new apartment sales (after deducting apartments sold in government support programs). The number of such deals peaked in June 2024.

But there are limits to what can be achieved in Israel’s war-battered economy. After housing prices have risen since the beginning of 2024, it seems that deals have reached a kind of ceiling and the market has stopped. During the third quarter, an average decline of more than one percent per month was recorded in new apartment sales. When apartments sold in government support programs are discounted, the decrease is greater.

In Ashkelon, for example, there was a 23% decrease in the number of new apartments purchased in the third quarter compared to the second quarter. In Petah Tikva, the decrease reached 22%, in Rishon Lezion 30%, in Ramat Gan 25%, and in Beersheba 27%.

This seems like a trend as the Bank of Israel is putting these deals under pressure, and Bank Leumi – the first bank to allow developers to make these deals – is now restricting them. The Israeli Tax Authority is also looking into these deals and the possibility of imposing new taxes on them. All of these developments do not bode well for the continued popularity of these deals.

The Jerusalem paradox

The area leading this decline in housing prices is Jerusalem. In terms of real estate deals, about 70% of the deals in this area take place in the city itself, and about 30% in Beit Shemesh. In each month of the third quarter of the year, a decrease in prices was recorded in the district, by 1.7%. On the other hand, in this region, the number of registered quarterly deals was the highest in the last two years (more than 2,500 deals). Two seemingly contradictory personalities.

But the prices of deals completed in the capital indicate what happened. The average deal price in the third quarter of 2024 was 5% lower than in the second quarter. The change in apartment prices depends on their size. Four-bedroom apartments fell by 1.3% between the second and third quarters, while five-bedroom apartments rose by 3% (prices for larger apartments fell by 9%, but the sample was very small). Another notable thing in Jerusalem is buyers’ preferences, which mainly included small apartments of up to 3 rooms. This recorded relative stability in the number of deals in the second and third quarters, while a significant decrease was recorded in deals for larger apartments.

Part of the reason for the decline in prices was the large sale of apartments in subsidized programs in Ramot and Givat Hamatos, which brought down average prices. Another factor is the foreign population who buy in large numbers in Jerusalem and Beit Shemesh. Although their number is not high, communities often buy together, so the impact on prices may rise at purchase – and fall, in the post-purchase periods.

However, overall, the picture that emerges from the numbers is that buyers in Jerusalem in the third quarter looked for smaller apartments than those purchased in the second quarter, and were only willing to pay NIS 40,000 less on average than in End of September.

Published by Globes, Israel Business News – en.globes.co.il – on November 18, 2024.

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