Report: New-home Sales Drop Sharply in First Quarter

New-home sales plunged 7.2% for the first three months of the year from the same time in 2013, with observers warning that prices are making homes increasingly out of reach for middle-class families.

Citing preliminary figures, the Central Bureau of Statistics reported yesterday that the number of new homes sold in the first quarter of 2014 fell to 5,720, from 6,170 a year earlier.

“The decline in the number of homes being bought is just the clouds gathering before the storm,” said Erez Cohen, a property assessor. “The figures make clear that in April, and even more so in the coming months, the trend will strengthen.”

Cohen said the drop directly and indirectly reflects the increasingly high cost of buying a home and getting a mortgage, as the Bank of Israel toughens lending conditions. But other observers said it was not clear whether the government’s latest initiative to cool the housing market was responsible for the decline.

Its two big initiatives – to eliminate value-added tax payments for first-time buyers buying new homes (up to a maximum of 1.6 million shekels ($462,000)), and the so-called “targeted price” for homes built on land sold to contractors by the government – were both unveiled in the final weeks of the quarter.

Cohen blamed the VAT initiative – which is being promoted by Finance Minister Yair Lapid – for destabilizing the market. Cohen called it “unnecessary and poorly planned.” The final version of the VAT plan has yet to be approved, but large numbers of buyers are assumed to have delayed any buying decision to see whether they will qualify for an exemption on the 18% tax.

MK Itzik Shmuli (Labor), a member of the Knesset Economic Affairs Committee and Knesset’s housing lobby, said Lapid’s plan would cause home prices to skyrocket if they did not come to fruition. “The fact that Lapid first made headlines and only afterward got to work on the details shows a lack of preparedness and seriousness,” he said.

The government has been seeking to put a brake on home prices, which rose 6.4% in the 12 months to the end of February 2014. It cost the equivalent of 147 average monthly salaries – a new record – to buy the average-priced home as of the end of 2013, according to the Housing and Construction Ministry. The equivalent figure five years earlier, in 2008, was 96 average salaries.

On a geographical basis, the biggest drop in new-home sales occurred in the Haifa area, where the number of sales plunged 19% from a year earlier, the CBS said. The decline was a more moderate 8% in the center of the country, while in the south it was just 4%.

In the north, by contrast, new-home sales climbed 13% year-on-year in the first quarter, and in the greater Tel Aviv area they were up 6%. The Jerusalem region saw no change.

In terms of housing stock available for sale, there was a slight increase in the 12 months, with the inventory of sold homes reaching 23,610 at the end of March, a rise of 4.6% from a year earlier, the CBS said.

Most of the increase was in the north, where the number jumped 40%. In the Jerusalem area, the supply increased 13% and in the Haifa area 4%. In the southern region and greater Tel Aviv, the inventory declined by about 2%, while in the center there was no change.