Housing Prices Drop in Real Terms in Israel for First Time in Year and a Half

But the real estate industry does not believe the drop reflects a trend, because the demand for housing still outstrips supply.

The real estate industry does not believe that housing prices are dropping, despite the slight decline recorded in the second quarter of 2013. The Government Assessors Office reported on Sunday that housing prices dropped 0.3% in the second quarter, the first decline in real terms in a year-and-a-half.

“The market is still rising, but the rate of increase is falling,” said Adina Hacham, the CEO of Anglo-Saxon real estate compay. “I believe it will moderate further, but there won’t be dramatic changes.”

Hacham said property investors are still active in the residential real estate market, despite the introduction of new taxes and other restrictions, which, she said, do not offset the continuing shorfall between demand and supply. “Unless something dramatic happens economacally, there’ll be no drama in home prices,” she added.

That opinion was seconded by Ohad Dannus, head of the Israel Real Estate Appraisers Association, who said the govenrment had failed to act on promises to restrain prices. “Until all the promises are translated into action, the market is going to remain strong,” he said. “Buyers who listened to promises by decision-makers and didn’t buy a home paid a penalty of NIS 50,000 to NIS 70,000 in higher prices.”

Moreover, the downtick detected by the assessors office is based on a survey that is so small that the results could be due to statistical error. In any event, in nominal terms, apartment prices rose nationwide in the second quarter, albeit by a slight 1%. The consumer price index rose 1.3% in the same period, meaning that in real terms prices appeared to have fallen. Home prices rose 4.6% in nominal terms from the second quarter of 2012.

The assessor’s survey tracks the prices of three-bedroom homes in 16 cities across Israel. The sharpest rise in the second quarter was in Modi'in, which saw a 5% increase over the previous quarter. Behind Modi'in, there were 3% increases in Ashkelon, Be'er Sheva and Rishon Letzion. Prices in Tel Aviv, Jerusalem, Petah Tikva, Netanya and Eilat didn't move, while they actually dropped in nominal terms in Ashdod (2%) and Ramle (1%).

Since the second quarter of last year, home prices have held more or less steady, according to Government Assessor Tal Alderoti. “Its a stagnant trend, with a creeping nominal rise,” he wrote in the second-quarter report. “The big boom hasn’t come. It seems we’ve reached the upper limit, where every home is expensive and price rises have stopped. On the other hand, prices aren’t falling, because the govenment hasn’t succeeded in creating enough supply.”

Ilan Assayag