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Despite lower prices and interest rates, the housing market continues to struggle with many contractors in danger of collapse, a Dun and Bradstreet report said yesterday.

Noting that August new home sales fell 11 percent below the average during the first half of the year to 7,330, D&B economists said the situation's deterioration means that 27 percent of all building companies are in danger of closure, a figure well above the 17.8 percent national business average.

The market's lethargy also was reflected in declining mortgages for both new and second-hand homes. Home buyers took only NIS 1 billion in loans in October, down from NIS 1.2 billion in September and NIS 1.6 billion in August, 42 percent of the average during the first half of 2004.

Housing sales through the Ministry of Housing and Construction have also declined from a first half 2004 average of 439 units to 326 in September.

The reason for the sharp decline is the cancellation of government housing grants, which had been a major incentive to buy homes, particularly in the periphery, D&B CEO Reuven Kuvent said. Consequently, mortgages by grant-eligible buyers also dropped dramatically from a monthly average of 4,580 in 1996 to a mere 1,800 in August 2004, which represents a 29 percent drop from the 2003 monthly average.

Kuvent said the trend means that despite the economic recovery, citizens still cannot commit to a mortgage without government assistance that once had been provided.

High unemployment also accounts for the drop in home sales, because families with only one breadwinner cannot keep up with monthly mortgage payments.