New Israeli Home Prices Drop, Prompting Hopes for Cooling Property Market

Indication that prices might be dropping is drawing great enthusiasm from decision makers in the field, who are hoping that the upward trend seen since the end of 2007 might finally be ending.

Ofer Vaknin

The Housing and Construction Ministry released data showing that the price of new homes sold between July and September came to NIS 1.583 million ($404,000) — that’s 6% less than in the second quarter of the year (April-June), and 4% less than in the parallel quarter, July-September 2014.

The average price of second-hand homes sold in the third quarter this year was 1.277 million shekels, some 4.3% less than in the second quarter of this year and unchanged from the parallel quarter in 2014.

The figures were produced by the ministry’s statistics department, and are slated to be published as part of the ministry’s quarterly review over the next few days.

The indication that prices might be dropping is drawing great enthusiasm from decision makers in the field, who are hoping that the upward trend seen since the end of 2007 might finally be ending.

Sources said there are two main explanations for the drop in prices observed in the ministry’s data. One is a drop in the number of transactions in central Israel. For instance, there were 6% fewer transactions in Tel Aviv and neighboring cities such as Givatayim, Ramat Gan and Herzliya, where prices are relatively high. Fewer home sales in Tel Aviv and its immediate neighbors would thus reduce the average nationwide home price for the quarter, even if home prices have not actually dropped.

Another factor is the government’s actions in the housing market, including ongoing efforts to push real estate investors out of the market. Investors scooped up homes in May and June before new taxes went into effect on apartments purchased as investments, while from July onward there has been a sharp drop in the number of homes bought by investors.

The statistics indicate that new 4-room apartments sold for 1.413 million shekels last quarter, some 5.5% less than in the second quarter of this year as well as the parallel quarter in 2014. The average price of a new 5-room apartment was 1.777 million, some 5.7% less than in the second quarter of this year and 2.6% less than in the parallel quarter of 2014.

Prices of second-hand home sales also dropped in the third quarter. Second-hand 4-room apartments sold for an average of 1.279 million shekels, some 3% less than in the second quarter of the year, while 5-room apartments sold for an average of 1.722 million, 7% less than in the second quarter. The price of second-hand 3-room apartments was unchanged at 929,000 shekels.

However, sources advise not to give too much significance to this data in terms of Israel’s home prices in general. These findings come before Finance Minister Moshe Kahlon’s main plan to reduce housing prices, the Mehir Lemishtaken (Good Deal for Home Buyers) plan for building tens of thousands of apartments at reduced prices, is implemented.

The first tenders for the reduced-price projects were closed in October.