"I have instructed the director general of the ministry and the director general of the Israel Land Authority to prepare staff work for the presentation of a work plan that will maintain the pace of land sales and building starts, with the aim of bringing about a fall in prices in the near future," Minister of Housing and Construction Yitzhak Goldknopf said this week as he opened the lottery for subsidized apartments under the "Home at a Discount" program.
According to Central Bureau of Statistics figures, however, home prices are about to fall regardless of any action taken by Goldknopf and other government ministers. In fact, prices of new homes on the open market have fallen at a rate the like of which has not been seen for three years, and homes in central Israel, which led the price rises, have fallen in price for the first time since the Covid-19 pandemic broke out. These price falls have not happened as a result of government policy, but as a result of a steep drop in demand caused by the rise in interest rates.
The wave of home price rises is probably about to end. The most recent index of prices does show a rise: 0.3% between October 15 and November 15 2022, mainly resulting from a rise in secondhand home prices. The previous monthly measures were, however, three times higher and more than the latest one, the lowest since January-February 2021, when prices rose by 0.2%.
The most prominent features of the most recent period for which figures are available are the falls in prices of new homes and the price falls in central Israel. Prices of new homes fell by 0.9%, but the rise was mitigated by the fact that 15% of the new homes included in the index were bought under the subsidized Buyer Price program. Excluding these, prices of new homes sold on the open market fell by 2.4%.
One of the changes that has characterized the market since interest rates started rising is in buyers’ geographic preferences. The districts that led the price rise have seen a lull, while for the period from April, when the Bank of Israel started raising rates, to mid-November, the Haifa district registered the largest price rise, of 11.8%, ahead of Jerusalem (10.6%), Tel Aviv (10.2%), the northern district (9.4%) the southern district (9.1%), and the central district (9%).
Is the wave of price rises over? Not yet, because the latest home price index did show a rise, if a much more modest one than in the past. But there are signs that the market is behaving differently from the way it did at the peak of the price rise at the end of 2021.
Against this background, statements such as that of the minister of housing sound divorced from current reality, in which the supply of homes is not the relevant factor, and has been replaced by the financial position of both real estate developers and home buyers. Is it right at this time to continue with "Home at a Discount" lotteries, even though the burden of mortgages on buyers is rising? The Ministry of Housing and Construction does not appear to be aware that such a problem exists.
Published by Globes, Israel business news - en.globes.co.il - on January 17, 2023.
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