Housing Minister: Buyers Buying Smaller, Less Central Homes

But industry figures dispute findings and point to additional factors.

Home prices in Israel declined in the second quarter of the year after peaking in the first quarter, according to figures published Wednesday by the Housing and Construction Ministry.

According to the ministry, new homes sold for an average of 10.5% less in real terms in the second quarter than in the previous quarter, while other homes sold for an average of 1.5% less. But these figures may not indicate that the long-awaited change in the direction of the real estate market has come. They may instead indicate that buyers are buying less expensive homes, primarily smaller apartments and in less desirable areas.

The ministry thinks otherwise. It says that the decrease in prices stems from a correction after the unusually high prices seen in the first quarter, and that the market may believe in the action the government is taking to lower prices.

This report, conducted by the ministry's economic analysis department, is the most thorough and detailed review being conducted regarding the country's real estate market. It includes data on more than 100 cities and towns, and takes into account factors such as the number of rooms in the home and whether or not it is new construction.

According to the report, after adjusting for inflation home prices are back where they were a year ago – new homes sold for 1% more in real terms than in the second quarter of 2012, while secondhand homes sold for 2% more.

Yet despite the similar prices, there is a major difference in the homes that sold this year and last year. There was a significant increase in the percentage of those homes that were in the north and the south of the country – 25%, versus 20.6% in the second quarter of 2012. There also was a slight increase in the number of 4-room homes, at the expense of 5-room homes.

The data also indicate a difference in who's buying the homes – there were more first-time buyers in the second quarter of this year.

The report also found that the price of new homes sold declined in some cities between the first and second quarter. Tel Aviv stood out with a 9.7% drop in real terms. (Prices were up 1.2% versus the second quarter of 2012). More specifically, 3-room apartments sold in the second quarter cost 6% less than in the first quarter; 4-room apartments, 9% less, and 5-room apartments, 16% less. Jerusalem saw a 2.6% drop versus the first quarter, albeit a 13% increase since the second quarter of 2012. Home prices in Tel Aviv suburbs Ramat Gan and Givatayim fell as well.

High-demand cities including Haifa and Modi'in registered double-digit-percentage price increases.

In many places, though prices were stable.

Industry figures expressed doubt regarding the findings.

"It's not clear how the ministry is carrying out its survey. Everyone else, particularly the state appraiser, found the trend of price increases is continuing throughout the country," said Real Estate Appraisers Association chief Ohad Danos, adding that the second quarter includes the Passover holiday, when the market is generally slower.

"In general, the only thing we're seeing the government declarations and taxation increases doing is pushing property investors to cities even farther from Tel Aviv and triggering dramatic price increases there, exactly as the association predicted," he said.

Anglo Saxon Real Estate CEO Adina Hacham said many buyers are waiting in response to the repeated declarations and news reports about how high home prices are.

"The demand isn't gone, but we're seeing in the secondhand home market that people are conducting drawn-out negotiations and they're not rushing to sign," she said. "Attractively-priced homes are snapped up, while those less attractively priced could languish on the market for three to eight months until they're sold."

Ofer Vaknin