Housing price falls are steeper than they seem

Prices for new apartments on the free market in Israel fell by 5.8% in four months, equal to an annual decline of 18%, and a serious warning sign for the entire real estate sector, according to figures published by the Central Bureau of Statistics on Juma. This comes along with a monthly decline of 0.2% in the first monthly aggregate apartment price index for 2023. Meanwhile, rents continue to rise, fueling inflation and rising interest rates.

As interest rates continue to rise, Israel Builders Association President Raoul Srogo said: “The Israeli government has left itself out of the economy and the housing market, just ahead of the peak of a crisis we have not yet seen. , because of the huge shortage of apartments and will help the homeless.As a representative of the industry, I tell you that if interest rates continue to rise, many contractors will lose their economic independence and some will collapse.This is an event that could affect the pocketbook of every citizen of Israel, with a decrease in The ability to build and a jump in housing prices and rents.

This is a desperate, resounding and unusual response by one of the most powerful economic organizations in the country, while the Central Bureau of Statistics data is also exceptional, and accurately reflects the harsh atmosphere prevailing in the construction industry, which is currently in the midst of a severe crisis. Is Srogo exaggerating by warning of a “crisis” yet to come? not sure. A few months ago, Globes analyzed the construction industry, and came to the conclusion that a crisis the likes of which had not been seen in Israel for decades was emerging.

It is now clear that these concerns translate into numbers. Prices of new apartments sold on the free market (that is, excluding the government subsidy program for the buyer’s price) fell by 5.8% between October and January, according to the Central Bureau of Statistics report. This data is published monthly, but the Central Bureau of Statistics does not compile it into a continuous index. The official housing price index of the Bank of Israel, which includes apartments sold under the Buyer’s Price Program, has recorded a 2% decrease in these four months, so the Buyer’s Price Program apartments hide the real dynamics of price decline.

The 18% annual decline in free-market apartment prices is in line with the results of ILA land auctions, which fetched prices more than half of the appraisers’ estimates. Developers who expect a decrease in apartment prices in the coming years, take this into account in bids for the land.

Returning to the general index of housing prices for the period from January to February 2023, which decreased by 0.2% – after the significant decline in the prices of new apartments – this figure did not surprise anyone. More than the regression rate, the addition of a “minus” is the highlight of the current indicator, but it is more symbolic. But with so few deals currently being finalized and private sellers reluctant to accept lower prices, this distorts the real picture in the market.

Of greater concern is the rental market. Rents, excluding public housing, rose 0.5% in March, and the index including rents and home maintenance rose 0.7% last month.

Another worrying factor is the reaction of politicians who take credit for the price drop as a result of government policy rather than a recession in the sector. Finance Minister Bezalel Smotrich sees the decline in prices as positive, due to the government’s encouragement to increase the housing supply. “We said that in 2023 the increase in housing prices will be curbed, and here it is,” said former Construction and Housing Minister Ze’ev Elkin. Current Construction and Housing Minister Yitzhak Goldknopf insists that land should be marketed for 100,000 new homes this year, including 30,000 in reduced programmes.

These responses show why Srogo believes the government has been absent from the housing market. In a situation where prices fall slightly and interest rates rise while rents rise faster, everyone suffers: developers, homeless people, and homeowners who have taken out mortgages. The situation will not end well.

Published by Globes, Israel business news – en.globes.co.il – on April 16, 2023.

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