Hunting for Homes, and Realistic Statistics

Real estate prices may be dropping, but not as much as the government says, partly because a move toward cheaper transactions is skewing the numbers the public sees.

Accepted wisdom dictates housing prices are on their way down, but according to the experiences of many homebuyers, if figures have budged at all, they've budged northward.

Rami, a pseudonym, said he was looking to buy a new apartment in the Holon-Rishon Letzion area, and found bargains nonexistent. "Prices are either standing still or rising, but they're certainly not going down," he said. "Not one builder agreed to compromise on price, even when the apartments have stood empty for months. I was offered a 5-room apartment in Holon that will be ready in a few years for NIS 2.1 million. Prices are only falling according to your newspaper."

Petah Tikva
David Bachar

Rami isn't alone.

Market surveys conducted by house hunters seem to contradict those bandied about by national authorities. Central Bureau of Statistics data indicates housing prices dropped an average of 4% in the second and third quarters of 2011, reflecting am average decrease of tens of thousands of shekels per unit. The Finance Ministry's last report says prices declined another 1.3% in October from the previous month. The government appraiser also reported a drop, 1.2%, in home prices in the third quarter.

To understand the difference between what buyers are sensing and the official figures, several characteristics of the real estate market need to be taken into account.

The most noticeable aspect of Israel's housing market lately has been a marked decline in the number of transactions: In October this fell 15% from the previous month and 50% against October 2010. The protests and anticipation of prices dropping kept many potential homebuyers out of the market.

The last few months saw a spate of lowered prices in the guise of sales promotions by many companies trying to break the industry logjam, and discounts offered at trade shows or to organizations like Hever (a consumer cooperative for career military personnel and pensioners ).

The effect of these promotions, if any, will only be seen in figures released over the upcoming months, but it can be certain that builders will want to claim these were merely isolated "discounts" and not lowered prices.

So did prices go down or were the statistics wrong? Prof. Daniel Czamanski, of the Czamanski & Ben Shahar consulting firm, says Rami and other homebuyers are like blind men grasping only one part of an elephant and getting a skewed view, while the official numbers are able to take in the whole beast via a fairly large market sampling.

However, says Czamanski, the low number of transactions could also distort the statistics bureau's calculations: "Since the number of transactions is significantly smaller, price fluctuations could be large. A seller under pressure because he's leaving the country might sell at a low price. On the other hand, others might need to buy because they've switched jobs, for example, and compromise at a high price. When the number of transactions is low, the exceptions could have a relatively strong effect on the average."

Cheap tricks

Average prices could be distorted for other reasons too, like the mix of transactions: If the center of activity switches to cheaper areas the averages will show a drop in prices even though property prices didn't necessarily go down.

A distinct example of this is the drop in average prices for homes sold in Tel Aviv from the beginning of 2011 to the third quarter. According to data collected by MNA Real Estate Research, closing prices for housing transactions in Tel Aviv were down an average of 13% over this period.

This may have had to do with waning demand, but it was also due to a migration of homebuyers to cheaper neighborhoods. In the priciest areas, like the city center, Azorei Chen and Hagush Hagadol of north Tel Aviv, the number of deals fell precipitously, while the proportion of the city's transactions in its southern parts rose significantly and pulled the average down.

What this all means is that anyone looking for significant discounts in the city's north based on statistics is way off track.

Real estate appraiser Adi Zwickel, of the firm Zwickel Spiegel, also thinks the latest declines come from the mix of completed deals, not from a real lowering of prices. He thinks many of the transactions were for small apartments unloaded by investors taking advantage of tax reductions.

"Some of the homes now being sold in the used market are small apartments put on the market due to a break in betterment taxes which allows investment apartment owners to sell without paying the tax," says Zwickel. "The investors are quite ready to compromise on price because they'll save themselves the heavy tax burden. The sale of these apartments, combined with the current scarcity of completed transactions, gives those deals a heavier weight in the market, reflecting a decline in prices that isn't real."

High prices in the listings

Some of the house-hunting public browsing the online listings feel frustrated. Avner and his wife, in their mid-30s, have spent months searching for a detached house in Kadima-Tzoran at around NIS 2.5 million. "Prices on the boards are still very high," says Avner. "For one house in Kadima, for example, they were asking NIS 2.8 million. A house in the area was sold a year ago at NIS 2.1 million. Perhaps the deal reflected a price that was low at the time, but there is no way prices could have jumped so much."

Of course it's important to keep in mind that prices appearing in the listings aren't the actual transaction price. There are still quite a few sellers trying to get away with what they can, setting their price at much higher than the market level. Sellers are usually prepared to show a certain degree of flexibility around their asking price in other cases too.

"The bottom line is that nobody buys a home according to statistics," says appraiser Erez Cohen of the Barak Friedman Cohen & Co. real estate appraisal firm. "The price can vary from street to street and from neighborhood to neighborhood, and definitely from city to city."

In the next few months we might see a clearer drop in prices, according to Cohen. "Prices could decline another 5% to 10% beginning in the second quarter when builders are more pressed to sell and will bend on price," he says.

But not everyone agrees. "Usually in July and August the number of deals increases, partly because people move before the school year starts," claims Czamanski. "The market will awaken then, and prices too should stabilize, or even rise."