The price of a home bought in the second quarter showed a surprising decline, and data from the Housing and Construction Ministry released this week points to the reason: Stung by high prices in the most sought-after parts of the country, the typical home buyer settled for purchasing a smaller, cheaper house far away from the greater Tel Aviv area.
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The ministry reported last week that the median price of a new home declined to NIS 1.31 million in the April-June period, a trend the ministry attributed to the outsized presence of people buying their first homes, a category called “young couples” in ministry parlance, who tend to buy less expensive properties.
Young couples buying newly built homes represented more than 38.2% of all such buyers in the April-June quarter, up from 32.1% the previous quarter. Meanwhile, the share of the new home market comprised of overseas buyers, a group that generally buys higher-priced properties, declined to just 2.6% from 4.7%. The share of those buying for investment purposes also shrank, to 18.4% from 21%. Those trading a house that they owned for new home accounted for the rest.
Among young couples buying their first apartment, the average price for a new home was NIS 1.09 million, 16% less than in the first quarter. Among those couples who bought a second-hand unit, the average price remained unchanged at about NIS 1 million. But among buyers who already own a home and were looking to move, the average price was NIS 1.55 million, 2% less than in the first quarter. The average price of a new apartment bought as an investment was NIS 1.53 million, down 3%. Even prices for new apartments purchased fell 4% to an average of NIS 2.36 million.
The ministry figures fly in the face of most data coming out on the residential real estate market, which point to rapidly climbing prices. The trend has worried policy makers, who have acted to tighten criteria for mortgages and are casting about for ways to increase the pace of new construction. Earlier this week, the housing cabinet approved a plan in principle to form a government company to develop rental housing.
Doubting the data
Ehud Hameiri, a property appraiser, asserted that the ministry’s data don’t reflect an actual decline in housing prices. Rather, they show that consumers are piling into the market in a rush to get equity in whatever property they can afford for fear that prices will only go higher and lock them out altogether.
“The 16% decline in the price of new apartments purchased by first-time buyers shows that buyers understand that they have to compromise and buy cheaper apartments than they had planned, with three rooms instead of four or in outlying areas where prices are lower,” he said.
Dror Toren of America Israel Investments questioned the accuracy of the data altogether. "Unfortunately the statistics from the Housing Ministry don't indicate the actual trend. As usual, the figures are superficial and don’t relate to other critical elements that would provide a fuller picture. Missing, for example, is a comparison of the number of housing units actually sold each quarter. Also missing is the number of rooms in each apartment sold per quarter,” he said. “If in the second quarter the average apartment was smaller than the average from the first, it would also be cheaper."
In related news, the Bank of Israel reported on Wednesday that home buyers are taking ever bigger loans. The central bank said the average mortgage issued in August was for NIS 613,000, compared with an average of NIS 595,000 over the 12 preceding months. Over the past year, the number of home loans increased by 23,000 to 875,000. However, fewer borrowers are falling behind in their payments, the central bank said. Just 0.96% of mortgages were in arrears of more than 90 days, compared with 1.13% at the end of last year and 1.3% at the end of 2011.
With reporting by Sivan Aizescu.