A Fleeting Moment for the Market

A recent study shows that last summer's protest movement indeed led to lower housing prices, but for a brief period only. And it's been uphill every since.

Nathan Sheva
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Nathan Sheva

The hundreds of thousands of protesters who took to the streets last year were full of optimism, hoping the government would finally take determined action to depress soaring housing prices. This zeitgeist sent home buyers into waiting mode, and the number of sales dropped dramatically. But that effect lasted only for two months, after which prices resumed their upward climb. A climb that continues today.

A new report by MNA Real Estate Research shows that last summer's cost-of-living protests did indeed achieve their goal of pushing down housing prices - but only in the short term, for about two months between August and October. Would-be buyers hoped the demonstrations would have the same effect on housing as they did on cottage cheese prices. But by September 2011, around when the Trajtenberg committee released its report advising the government on how to change its social and economic priorities, that trend reversed. By then, would-be buyers realized that there was no relief in sight; without government action, the protest wouldn't achieve its goals.

The committee headed by Prof. Manuel Trajtenberg did not come up with recommendations for staving off price increases, only a vague plan to build more homes in the distant future. As a result, buyers started buying again, and prices resumed their upward climb in November.

The MNA report, drafted by Dr. Udi Ben Yosef, is based on Israel Tax Authority data. They show that in July 2011, right before the protests began, the average home sold for NIS 1.18 million. This figure dropped by about 8% through October, to NIS 1.09 million. Today that figure is back up to where it was on the eve of the protest, NIS 1.18 million. Meanwhile, would-be buyers who were hoping to wait it out by renting a home found themselves paying growing sums, as rental prices increased.

"Protest or no protest, sellers were not willing to compromise. They told us that these were the prices and there was no room for negotiation," says Dina, a woman in her 30s who bought a home near Hadera with her husband two months ago. "Even while the protests were going on, our landlord raised the rent on our Tel Aviv apartment. He recently told us that he intended to raise it again this year, from NIS 6,000 to NIS 6,500. We were simply better off buying and paying a mortgage. Given the prices, that meant leaving Tel Aviv, but at least we're close to our parents. We found a home for a relative bargain and we don't plan to move again, so it doesn't really matter if prices go up or down."

Last year's sharp drop in prices was accompanied by a parallel drop in the number of transactions. During the last few months of the year, there were only 4,000 to 6,000 transactions a month - a far cry from the 8,000 seen previously. Now it seems like buyers have given up hope that prices will be dropping, and have headed back into the market. The number of homes sold this May hit a 14-month peak, at 9,400. While it's too early to say whether the trend will continue over the next few months, in the meantime sellers and builders are enjoying its fruits.

Another relevant factor is the fact that the Bank of Israel cut its interest rate by 1% over the past year, and it may cut it even further. This has made mortgages significantly cheaper, making it even more attractive to buy a home. In quantitative terms, every 1% decrease to the prime interest rate means a person with a NIS 1-million mortgage payable over 20 years saves NIS 500 on his monthly payments.

Overall, it seems like the protest had the largest effect on the most expensive slice of the market - particularly in Tel Aviv and Jerusalem. This could indicate that homes there have reached their full price potential and are now selling for the maximum that buyers can afford. In less expensive areas such as Haifa and Be'er Sheva, the protest's effects were not as strong, and prices there are higher than they were on the protest's eve.

Drops in four-room homes

Despite the overall trend, according to the recent study, in some parts of the country prices have indeed dropped. In Tel Aviv, for instance, the price of homes sold in the quarter after the protests began was as much as 20% lower than those that sold beforehand. But since then, the trend reversed. Currently, homes selling in Tel Aviv are going on average for 12% less than they did on the eve of the protest, or 14% less than in January 2011.

However, this doesn't mean that housing has actually become cheaper; it could simply indicate that buyers are seeking out cheaper properties to begin with.

The most significant drops were in the price of four-room apartments sold: Average four-room apartments sold in Tel Aviv are now going 13% less than they did last August and 24% less than in January 2011. These prices aren't far off the averages of last fall, since the price of large apartments had started to drop even before the protests began. Again, this doesn't necessarily mean that apartments are getting cheaper; it could also indicate that the four-room apartments being purchased are in less desirable eastern and southern neighborhoods.

In comparison, three-room apartments are selling for nearly what they did in the beginning of 2011: a rather steep NIS 1.8 million. MNA's report stated that this is due to the growing demand for these apartments, as buyers find themselves unable to afford something larger.

In Jerusalem, the price dynamic is similar to that observed in Tel Aviv. There too, the average transaction decreased following the protest. However, the price drop for four-room dwellings was not as sharp as that observed in Tel Aviv: In May, the average four-room home sold for NIS 1.64 million, similar to the figure from January 2011. However, that is significantly less than the figure from July 2011: NIS 1.83 million.

In total, Jerusalem homes are now selling for 5% less than they did in January 2011, compared to 14% less in Tel Aviv during the same period. This may be because while Tel Aviv is surrounded by suburbs, would-be Jerusalem buyers don't have many alternatives.

Meanwhile, real estate investors haven't had the last word. Last month, the Finance Ministry reported that for the first time in two years, there was an increase in the number of home purchases by investors - by 15%. Decreasing interest rates alongside poor returns in the capital market may be what brought them back.

A demonstration last summer. The most significant drops afterward were in the price of four-room apartments.Credit: Tali Mayer

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