Analysis

Israeli Home Prices May Finally Be Turning Lower

The statistics bureau said Monday prices had fallen for two months in a row, while unit sales have been sagging

A new high rise in Kiryat Ono, near Tel Aviv.
Eyal Toueg

Finance Minister Moshe Kahlon has gotten off on the right foot for 2017. The minister has staked his political career on reining in soaring home prices and the Central Bureau of Statistics gave him a boost Monday with news that prices had fallen for two months in a row.

In February-March they were down 0.5% from January-February, bringing the decline to 0.6% since the start of the year. That might not seem much, and the statistics bureau warned that the latest figure may be revised as more data on home sales trickles in. But over the last decade of breakneck price rises there have been only two back-to-back months of decline.

Both came under exceptional circumstances. The first was in early 2011 when the social-justice protests were raging through Israel, putting a damper on the real estate market. The second was in the summer of 2014 when then-Finance Minister Yair Lapid was lobbying for his abortive plan to exempt many home purchases from value-added tax. That made buyers wait for prices to fall.

The statistics bureau warned, as it always does, not to read too much into one or two months’ worth of figures. In any event, history shows that when housing prices in Israel decline, they decline moderately. The kind of free fall that many are hoping for is an unlikely scenario. The declines that have occurred so far simply reduced the pace of rises over the past year to 4.7%, but prices are still climbing.

The statistics bureau said average prices for home sales in the first quarter showed declines in most segments compared with the same time in 2016. Nationwide, the average price was down 2.9% to 1.445 million shekels ($400,000).

In Tel Aviv, the overall average price was unchanged at 2.77 million shekels, but prices for the smallest units of 1.5 to two rooms saw an increase of 3% to 1.92 million shekels, and those for 2.5 to three rooms jumped 8.6% to 2.48 million. It was bigger properties that saw declines – of 7% to an average of 3.25 million for 3.5-to-four-room homes and 3.87 million for homes of 4.5 to five rooms.

In Jerusalem, prices were down an average of 0.6% to 1.88 million shekels. The smallest units saw prices fall 4% to 1.23 million while units of 2.5 to three rooms edged up 0.5% to 1.57 million. The biggest properties of 3.5 to four rooms and 4.5 to five rooms were up 4.1% and 6.2%, respectively.

Haifa homes, on the other hand, got more expensive – rising an average of 2.3%. But only the biggest homes actually saw an increase while most categories registered declines.

The price data come hand in hand with other figures the statistics bureau released Monday showing an 18% drop in home sales in the first quarter compared with the same time last year. More than that, the numbers showed that homes buyers were avoiding the center of the country and buying newly built houses in the northern and southern outskirts.

The center is still by far the biggest market, but it is in decline. In Tel Aviv, sales dropped 26% to 1,387 units in the year to March 2017, while in Jerusalem the decline was a steeper 32% to 1,378. Ramat Gan saw a 12% decline to 1,337. Rosh Ha’ayin, which has been punching well above its weight for new homes, suffered the biggest drop of all – 36% to 1,088.

But home sales were booming in the periphery: Kiryat Motzkin saw home sales jump 4.5-fold to 1,038, while in Nahariya sales reached 844 and in Netivot 459.

At least some of the sales decline in the center of the country can be laid to a shrinking supply of homes, as housing starts have been on the decline as well. Sales in the outskirts are probably being spurred by Kahlon’s Machir L’Mishtaken program, which sells homes at a discount.

A real turnaround in prices is still not a done deal. Still, conditions for one are coalescing, not least the fact that mortgage rates have been rising since the second half of 2015.