Israeli home sales fall to 20-year low in February
The Israeli property market extended its downturn into February, with the number of home sales plummeting 41 percent from a year earlier – a decline not seen since 2003 when the second intifada was raging, according to figures released on Wednesday by Finance Ministry chief economist Shira Greenberg.
The treasury survey showed that only 6,311 homes were purchased in the month, even though prices have been falling since April 2022, when the Bank of Israel began to raise interest rates.
Since then, the increase in mortgage rates has kept buyers away from builders’ sales offices. More recently, the political uncertainty arising from the controversy over the government’s judicial coup over the last few months has made things worse.
The figures show that the secondhand segment of the market has been hit the hardest, with sales of secondhand homes reaching just 3,775 units in February, a drop of 48 percent from a year earlier. The decline was pretty much across the board, but the steepest declines were recorded in Hadera (down 60 percent), Rehovot (56 percent), and Tiberias and Be’er Sheva (37 percent each).
The treasury figures also showed that the time it takes homeowners trading up to a bigger unit to sell their old home after buying a new one had increased – to an average of 39 months, an increase of 120 days over the same time in 2022.
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The housing market is keeping its head above water thanks to the big discounts contractors are offering buyers. Even so, sales of new homes by builders fell 27 percent in February from a year earlier, to 2,536 units. The treasury’s chief economist attributed the discounting to builders’ need to generate cash flow at a time when high borrowing costs are raising their financial costs.
The treasury estimated that contractors’ combined cash flow in February came to 5.7 billion shekels ($1.6 billion), a drop of 34 percent from the same time in 2022 and the lowest figure since May 2020 when the coronavirus pandemic had cut into sales.
However, sales trends for new homes differed from place to place. While sales declined in the center of the country, where demand is traditionally the highest, in Be’er Sheva and the south they were up 35 percent in the month.
The treasury said the sales increase in the south was probably due to home buyers opting for lower-priced homes in the periphery to ease the cost of rising mortgage rates. Recent data from the Bank of Israel, which showed that the average home loan being taken out by Israelis has been steadily decreasing in recent months, confirms that observation.
Another factor in the real estate market downturn is the exit of residential-property investors in recent months. In February, according to the Finance Ministry, house purchases by investors was down 34 percent from a year earlier. They accounted for just 16 percent of the market.
Rising interest rates have cut sharply into the returns on property investments.
In addition, the stock of housing owned by investors continued a decline that set in in December 2021, with the total falling by 302 units in February to bring the total to about 2,400.
Over the longer term, the decline in the number of investment homes may lead to rising rents. About a third of Israelis rent their homes, and most of the landlords are private investors rather than large real estate companies.
The government embarked in 2016 on a program to increase the stock of rental apartments, with the goal of building 150,000 units for long-term rental. However, to date just 3,600 units have been completed. That undertaking has also been undercut by rising interest rates, with government offers for such projects failing for lack of bidders.
The rental market’s troubles emerged pointedly last week: While the Central Bureau of Statistics reported that in January-February home prices fell for the first time in almost three years, rents for tenants signing new contracts jumped 7.2 percent year on year.
Meanwhile, the number of homeowners “downsizing” to a smaller, lower-priced property has been growing. The treasury’s chief economist said the category had grown to a third of the market total in January-February from 25 percent in March 2022. However, the average price difference between their old and new homes grew to 840,000 shekels in February from 625,000 the same time in 2022.
The treasury estimated that only a quarter of the downsizers were pensioners. As to why the other 75 percent were opting for a smaller home, officials could not offer an explanation.