Unfazed by headlines reporting falling prices, a housing market freeze, price levels staunchly kept high by sellers in the used market, and even the prospect of renewed cost-of-living protests, one young couple has decided it's time to buy.

"We were renting, and when prices dropped a bit our parents started nudging: 'It's a shame to put another NIS 4,000 down on rent each month when, for just a bit more, you can buy an apartment,'" relates Elad.

"We weren't even deterred by prospects that prices might decline further since we would still need to be paying rent anyhow," explains Elad. "We spoke with friends in the real estate business who said prices don't have much more room to drop, and they helped convince us that now's a good time to buy. Prices obviously won't fall to the level they were at before they took off. We've seen many homes for sale, but not much drop in prices."

Elad and his wife, who went looking for a used home around Herzliya and Kfar Sava, say owners showed little inclination to bargain. "We actually felt agents were more prepared to close a deal and would try bridging the gap, lowering the price a bit," he says. "But anyone selling on their own behalf stuck stubbornly to the asking price."

The real estate market has been showing some encouraging signs - but mostly for builders and less for buyers. About 22,200 homes were sold in the first three months of the year, according to the Finance Ministry's State Revenue Administration - 19% more than the low point reached the previous quarter but still 15% below the number sold in the first three months of last year.

The growth in sales compared with the fourth quarter of 2011 was driven by a 36% increase in new home sales, and market mavens particularly note rising activity among young couples. There was also an upturn in the used home market where, according to treasury figures, the volume of transactions rose 14% against the previous quarter, following four straight quarters showing declines.

Have house hunters given up waiting for prices to drop, or was it perhaps sales campaigns that brought back the buyers? It was likely a combination of factors. But clearly, after a couple of quarters of deep freeze following the protests, traffic at sales offices has been restored, while the tents on Rothschild Boulevard have become barely more than a dim memory.

Real estate processes are lengthy and trends cannot always be discerned from the results of a quarter or two, but builders already hail the change. "The desire and the need have gotten home hunters buying again," says Amos Dabush, marketing manager at Y. H. Dimri Building and Development. "This is partly due to promotions and enticements luring fence-sitters back. Price decreases remain mainly in the eyes of the media: In actuality the decreases have been minor."

Dabush also feels, as figures show, that young couples have spearheaded the recent wave of purchases. "The demand we face is noticeable for projects in Netanya, Ashkelon, Modi'in and Be'er Sheva; projects targeting the middle class at reasonable prices," he adds. "The next stage is the return of home owners looking to improve their accommodations."

"There is nothing safer these days than home ownership," says Hanan Mor, owner and chairman of Hanan Mor Group. "These are uncertain times: There is uncertainty about supply, uncertainty about taking out a mortgage, and developers are also operating under uncertainty, so they have set out on promotions. The bottom line is that there is still a housing shortage because of a severe lack of projects being started."

It was mainly the dashed hopes of buyers for price reductions that drove them back into the market, according to Mor. "Each month, more and more people who sense that buying a home is moving further out of reach join the pool of buyers as rents continue climbing," he says. "In 2009 and 2010 prices rose sharply, and then the government decided to rein them in by curbing demand. Meanwhile, reforms were expected to ease restraints on construction and build up supply, which would help lower prices - but all this didn't come about. They tried to claim that prices would drop, but people waiting for this to happen never saw it materialize. When they realized prices hadn't fallen, they reentered the market. We would have seen a significant drop in prices had the disappearance of demand been genuine, not merely a matter of psychology."

Builders' discounts also helped bring buyers back into the market these past few months. Ronen Shitrit, owner of the Anglo-Saxon real estate agency, explains that anyone thinking builders can lower their prices by 15% can expect to be disappointed. "Builders' homes can't fall by more than 20% in price as this would destabilize the industry," he says. "If prices dropped like that we'd see construction companies collapsing."

"Most new projects are on land that is bought expensively, and construction costs such as the price of cement and steel have also been climbing," adds Shitrit. "Chinese labor now costs NIS 600 a day, double what it cost just seven or eight years ago. A developer earns 10% to 15%, so a 10% drop would erase all profit. For example, an apartment sold at NIS 1.5 million generates a NIS 150,000 margin for the builder, and while paying NIS 50,000 less may seem small to a buyer - for the builder it's a big bite off his profit."

"There are certain developers with land bought earlier at low prices who could lower prices further, but the rest of the market can't, so they don't either," concludes Shitrit. "Sellers of second-hand homes have a lot more room to be flexible than builders do."

Price stability

Home prices remained stable in the first three months of the year, according to figures released by the government appraiser last week. The sharpest drop, 7% in Tel Aviv, was probably due to a shift in the mix of homes purchased as buyers went for smaller, cheaper apartments. Modi'in and Ramle saw the steepest price hikes, 9% to 10%, with Ramle benefiting from the successful branding of projects being built in adjacent Moshav Matzliah and Modi'in experiencing high demand accompanied by short supply.

The index for prices of dwellings updated last week by the Central Bureau of Statistics for February-March increased slightly by 0.3%, following a trend similar to the one shown by the government appraiser's data: a drop in prices shadowing the protests, followed by prices remaining level and recent slight increases.

Will the continued rising volume of new home sales raise prices further? "Demand isn't high enough to lift prices," says Dabush. "Another factor putting the brakes on price increases is that the second-hand market hasn't returned to normal - for psychological reasons not connected with the protests. After buyers realize that prices aren't declining much and demand recovers, prices might then go up - but we haven't reached that point yet."

Michael Sarel, head of macroeconomic research at Harel Insurance and Finance, thinks housing prices are most likely to rise. "Neither housing inventories nor demand are at exceptional levels in historical terms, so there's no reason for a significant change in price levels," he says. "Another significant rise in inventory isn't anticipated and building starts have declined - indications shoring up housing prices. In addition, unemployment is low and the interest rate is negligible in real terms, and as a result the interest on mortgages is low. Growth figures are also positive. Therefore, chances are good that prices will go up or at least remain stable."

Mor thinks residential prices will be dictated in the future according to supply in different areas. "In Rosh Ha'ayin, for example, 3,000 new apartments are now being built and prices there could go down," he says. "But there isn't much supply in Nes Tziona, Rishon Letzion or Ra'anana, so prices in these areas can be expected to rise or stay level.

"The current trend is toward the city centers where people find good educational services and quality housing," continues Mor. "Responsibility over real estate activity should be transferred to mayors because they are the ones who could stem future price rises - by expediting urban renewal plans, for instance. They should be given greater operational authority. Current housing solutions in city centers don't sufficiently cover the population's needs."