Sales of new homes plunged 20.4% in February from a year earlier, the Central Bureau of Statistics reported on Monday amid signs that Israel’s one red-hot housing market is cooling quickly.
The figure comes a week after the CBS reported that home prices had marked their fifth monthly decline in January-February, or 2.4% since September, and the treasury said sales of all homes dropped 12% in February.
But the good news for hard-pressed home buyers could be short-lived because lower sales and lower prices are deterring contractors from building homes, for fear they will be stuck with too much unsold inventory.
The CBS said trend data showed that sales of new homes had been falling at an average of 1.6% since July 2015, after rising an average of 4% in the year before that. The trend in sales more or less parallels the trend on construction starts, which began declining in the third quarter of 2015 after reaching a record high.
The building industry learned a hard lesson in the early 2000s. Encouraged by government incentives for first-time buyers, contractors built thousands of units in the periphery, especially the Negev and the Be’er Sheva area. When the incentives were suddenly stopped, builders were left with unsold homes and many were driven into bankruptcy.
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A similar phenomenon happened in the 1990s when construction starts ballooned during the wave of immigration from the former Soviet Union. Contractors overbuilt and in the second half of the decade the oversupply of unsold homes created an industry financial crisis. Building starts declined then, too.
At the end of February, the inventory of newly built unsold homes nationwide stood at 22,900 units, the lowest since the CBS began compiling data in a revised form in January 2017. (It is impossible to compare figures before then with current ones.) Since last July, the inventory has declined by an average of 0.6% a month, meaning builders are not keeping pace even with the constrained demand.
Another factor to look at is how the decline in sales in occurring geographically. Traditionally, when home sales are going into a decline, the trend starts in the periphery because it is more sensitive to changes in price. In the current market, buyers prefer the center of the country.
The CBS data show the biggest decline in sales in the Haifa, northern and southern regions in the second half of last year. They reached a record high of nearly half of all sales nationwide at the end of 2016, and were down to just 30% in the first two months of this year.
By contrast, in the Jerusalem and Tel Aviv areas, sales of new homes have continued to rise. The figures are only preliminary, but the trend is pretty apparent already.
The CBS doesn’t break down the inventory of unsold homes by region, but it is safe to assume that it is growing in the periphery because that was the site of so much residential construction in recent years. If so, that means the inventory of homes there is not going to meet the demand.