The least relevant item in the Central Bureau of Statistics’ figures for home prices is the annual rise between June-July 2023 and June-July 2024, the latest period for which information is available. In that year, home prices rose 5.8%. But the Israeli real estate market after November last year is quite unlike the market as it was before then. The relevant datum for the current market is that after eight successive monthly rises in the Home Price Index, it has shot up 7%, representing an annualized rise of 11%, and there’s more to come.
If we connect the price data to the number of transactions in July and the figures for mortgage taking in July and August, we can see that we are promised a continuation of the weird movie in which the Israeli real estate market stars: rising prices at the same time as the supply of homes grows. To state that in numbers: the Central Bureau of Statistics puts the number of unsold new housing units at the end of July at 69,430, 19% more than at the end of July 2023, 47% more than at the end of July 2022, and 53% more than three years ago. At least since the 1990s, Israel has not known such a large supply of unsold new homes. And yet prices are galloping ahead uncontrollably.
Our view at "Globes" is that this paradoxical phenomenon is not caused by a breakdown in the effect on prices of supply and demand, but by large gaps between the supply of homes on paper and the supply of homes actually in demand.
Most new homes irrelevant to buyers
The supply of homes on paper includes all the unsold new homes and all the secondhand homes offered for sale, which altogether amounts to about 100,000 housing units, but the public selects from these the homes that are relevant to it. In the case of new homes, people mainly seek those that will soon be complete, and in the case of secondhand homes, those that have protected spaces against air raids. When potential buyers discount the homes that are irrelevant to them, they take into account homes on the plan that, with all today’s labor problems, have unpredictable completion dates, and homes with no protected space, that is, most secondhand homes in Israel.
Long-term failures of Israeli governments, which did not expedite urban renewal and TAMA 38 reinforcement and expansion programs, and short term failures of the current government, which have caused a drastic decline in the construction workforce, have led to a situation in which, despite the large supply numbers, there’s a shortage of homes.
The market’s hunger for homes that people actually want to buy finds its strongest expression in the proportion of new homes sold. For the first seven months of this year, they represent 47% of all transaction in the market. The secondhand homes market, which is mostly based on old apartments with no protected spaces, is in the doldrums.
This is especially so in Tel Aviv, where the average monthly number of new homes sold has tripled within seven months. Two-thirds of the home buyers in Tel Aviv are buying new homes. In Ramat Gan, the proportion is 52%, while in Petah Tikvah purchases are evenly divided between new homes and secondhand homes. In the southern cities of Ofakim, Netivot, and Sderot, where the trauma associated with homes without protected spaces is especially strong, there is practically no secondhand homes market, while these cities are at the top of the tables for new home purchases.
The geographical districts pulling the Home Price Index upwards are Haifa, where prices have risen since last November by 9.7%; the central district, where prices have risen 7.8%; and Tel Aviv, where prices have risen 7.2%. After them comes the northern district, with a 6.8% rise; the southern district, with a 4.4% rise, and the Jerusalem district, with a 2.9% rise.
Prices of new homes in this period have risen by just 3%, indicating that the price rise is mainly in the secondhand sector, which strengthens the hypothesis that secondhand homes with protected spaces are in short supply, and those that do have them are rapidly becoming more expensive.
Rents are also rising, although more moderately. The rentals index rose by 0.7% in August, and is up 3.5% since November. In the first months of the war and during the winter, the rise in rents moderated considerably, and there were even falls here and there, but in the three summer months it has regained momentum.
Published by Globes, Israel business news - en.globes.co.il - on September 16, 2024.
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