Home Prices in Israel Show Biggest Decline in a Decade

Posting a 1.2% decline, the drop may point to cooling market.

Jerusalem housing construction. A crane towers over a construction site in the capital.
Daniel Bar-On

Home prices fell the most in a decade in the month to December 15, the Central Bureau of Statistics said Wednesday, amid signs that Israel’s overheated housing market might finally be cooling.

The agency’s housing price index dropped a sharp 1.2% from the previous 30-day period. It was the largest one-month decline since September-October 2007, around the time home prices began a long climb that saw them double.

The decline brought the increase in home prices for the 12 months to December 15 to 5.9%, down from 8.1% in the 12 months to November 15.

“The moderation in prices it not really a surprise — rising mortgage rates in the past year and a half, the decline in the number of home sale and at the same time a growing housing stock and figures pointing to investors exiting the market all bear witness to this,” said Ori Greenfeld, chief economist at Psagot Investment House.

The data should come as a relief to Finance Minister Moshe Kahlon, who has made efforts to rein in the housing market a signature goal. Kahlon has slapped taxes on owners of multiple homes, in a bid to increase the supply for owner occupants and hopes to lower prices directly via Mahir Lemishtaken, a program that sells state land to developers at a discount.

Little dipper
Housing price index

“Assuming the data aren’t revised significantly higher, it’s good news for the treasury,” Greenfeld said, adding: “We expect the moderating trend in prices to continue in the coming months.”

This week the Finance Ministry issued a report showing a decline in home sales in the second half of 2016, especially in December when sales of new homes plunged 28% from a year earlier, to 2,466 units.

Meanwhile, investors have been pulling out of the residential property market, squeezed by a July 2015 rise in the purchase tax and a new tax this year on people owning three or more homes.

The number of home purchases by investors fell 20% in the second half of last year, to 9,500. Investors sold more properties than they bought. That removed some 2,8000 units from the rental stock since August 2015, but also led to more homes going on the market.

“There’s a sense that the atmosphere in the market is changing. It’s hard to say what the new atmosphere is. ... I hear about people waiting but not about prices falling,” Government Assessor Tal Alderotti said in an interview with TheMarker this week before the CBS figures came out.

The treasury’s chief economist credits part of the cooling-off to Mahir Lemishtaken, or Buyer’s Price. The percentage of homes bought by first-time buyers — a key segment for Kahlon, who has concentrated on making sure homes are available for them — rose 12% in December from the month before. That was because there were four lotteries in the program in December.

But some observers warned that despite the big November to December drop it was premature to conclude it signaled a market pivot. Previous, if smaller, one-time price drops in the past decade quickly reversed. Prices dropped for three months in August-November 2011, at the height of the social protests, and again in July-September 2014, when the government considered but ultimately decided against exempting some home purchases from the value-added tax.