Finance Minister Moshe Kahlon finally got his wish in the last quarter of 2017 as home prices fell, but he was soon under attack for risking a real estate slump and endangering government tax revenues.
The Central Bureau of Statistics reported on Thursday that home prices fell 1.2% in the fourth quarter and that for all of 2017 they were up just 2%, the smallest rise since 2009. In the first regional breakdown of price trends, the CBS said Jerusalem led the quarterly decline, with prices slumping 5.1% from the third quarter.
After taking office nearly three years ago, Kahlon made continuing soaring home prices one of his top priorities, imposing higher taxes on property investors and launching the Mechir L’Mishtaken (Buyer’s Price) program to lower prices for first-time buyers.
But on Sunday, Kahlon found himself defending the lower prices in the Knesset Finance Committee, where he was speaking about the 2019 budget.
Isaac Herzog, the Zionist Union MK and opposition leader, warned that slumping prices could undermine economic growth and dent tax revenues. “From the figures we have today, 50,000 unsold homes are sitting on the shelf,” he said. “Contractors aren’t selling houses because they don’t want to lower their prices.”
Economists, including those at the Bank of Israel, have warned that a sharp drop in home prices could reverberate through the economy if the phenomenon comes hand in hand with an overall economic slump by leaving banks and builders with unsafe levels of debt.
But Kahlon was he was sanguine. “Nothing will happen if there’s a big drop in home prices,” he said. “We are seeing declines in the real estate market, which could bring a slowdown, but contractors’ profit margins are so large that they can afford to cede a little income.”
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Among other parts of the country to see big drops in the fourth quarter of last year, prices in the north fell 3.1%. The quarter-on-quarter declines were smaller for the south (1.5%) and Tel Aviv (0.8%). In the center they rose 1.2% and in Haifa by 0.2%.
Another new and controversial index of prices for new homes only showed a particular sharp fall of 2% for the period October 15 to December 15. One reason for the drop is that it includes the Mechir L’Mishtaken program, which recorded record sales in December and accounted for 25.7% of all new-home sales.
Builders are struggling to sell higher-end homes because buyers are now focused on cheaper properties, a phenomenon evidenced in figures released by the CBS: The average price of a home fell to 1.44 million shekels ($407,000 at current exchange rates) in the fourth quarter from 1.46 million in the third and the lowest level since the end of 2015.
In Tel Aviv, the average price was 2.7 million shekels in the quarter, a 2.5% decline and the lowest since the second quarter of 2016.
In the rental market, the CBS found that the average rent paid nationwide in the fourth quarter was 3,799 shekels a month, up 2.3% from a year earlier. In Tel Aviv, the average was 5,581, a 1.8% increase and the highest in the country. The next highest was in the Sharon areas, where the average was 4,433 shekels, an 0.5% rise.