With uncertainty at a peak, the rate of home purchase deals falling month after month, and the Ministry of Finance's repeated promises of a buyer fixed price discount apartment for every non-homeowner, it is no wonder that the proportion of people looking for housing and hesitating is at its highest level in years. At the same time, it turns out that the maximum price that buyers are willing to pay for a home has changed direction, and has risen by almost NIS 150,000 over the past year, which could also indicate despair among the respondents.
These are the main conclusions from a biannual "Globes", Bauman-Ber-Rivnay Saatchi and Saatchi unit Azimuth Advertising, and Mutagim Research Ltd. survey conducted in December for the 23rd time since 2006, the year when prices began to surge.
One of every 10 Israelis is looking for a home
The survey probes the public's buying plans: how many people as of now are looking for a home to buy, and how many of them are considering starting to search for a home to buy in the next three months. The figures from the recent survey (December 2017) indicate that the demand - those already looking and those considering beginning a search - is at a peak of 26% - more than a quarter of the sample, compared with only 14% at the end of 2016.
At a higher resolution, the proportion of respondents who answered that they were currently looking for a home to buy (excluding those who answered that they were planning on starting a search) is higher than in previous years, but fell from 13% in mid-2017 to 10% at the end of the year, showing that quite a few Israelis are not sitting on the fence at the moment.
In addition, the decline in demand in recent months is likely to indicate that the major demand stimulated by the large lotteries and the buyer fixed price plan is beginning to wane, perhaps because of complaints about various projects, the poor chances of winning a lottery in the some of the locations (mainly in projects in central Israel), and the long time that the winners must wait before progress is made in the project and they really get the key to a discount apartment.
While those eligible for the first series of lotteries (60,000 households) had an abundance of opportunities to participate in lotteries, those eligible for the other series (60,000 more households) did not receive an equal opportunity in the lotteries, and some of them decided against participating. In any case, despite the slight decrease, 10% of the respondents (those who said they were looking for a home) is still a relatively high figure in comparison with previous surveys.
The effect of the buyer fixed price plan on intentions: Willing to pay more
Here we get to the public's expectations for housing prices. The Ministry of Finance has repeatedly stated that the absence of deals and the stagnation in the housing market will eventually lead to a drop in housing prices, among other things due to the contractors' need for cash flow, the need of people seeking to improve their housing to sell their previous home quickly, and the pressure from investors seeking to sell their housing units because of the change in the market mood and the effect of the betterment tax that they will have to pay as time progresses. Other parties in the market are asserting that what is involved is at most pent-up demand that will burst out and reignite the rise in home price, as happened after former Minister of Finance Yair Lapid's 0% VAT plan was canceled.
Fewer 4 and 5-room apartments
The biannual survey examines the maximum price that buyers are willing to pay for a housing unit. In the previous surveys, or to be more precise, starting with the survey conducted at the end of 2015, this price declined from NIS 1.3 million at the end of 2015 to NIS 1.15 million in mid-2016, NIS 1.14 million at the end of 2016, and NIS 1 million in mid-2017.
The current survey, however, shows a change in the trend, with the average maximum price that buyers were willing to pay rising to NIS 1.145, almost 15% more than in the survey six months earlier.
The buyer fixed price plan went into effect at the end of 2015, and it cannot be ruled out that the auctions closed and many reports about projects slated for construction affected the public's expectations concerning housing prices. Measures such as the tax on a third housing unit (unsuccessful in the end), the increase in purchase tax for investors in mid-2015, and the reports about the substantial slowdown in home sales affected expectations. The fact that the maximum price that buyers are willing to pay is now changing direction may therefore signal that something has upset the expectations of a drop in prices. This is only one survey, and it is impossible to state whether a trend is involved, but the housing demand figures support a rise in prices.
Another figure in the survey supporting the hypothesis that many of the home seekers are first home buyers (the buyer fixed price audience) concerns the size of the housing units that people are seeking to buy.
The survey reports a moderate decline in searches for four-room apartments from 38% at the end of 2016 to 33% at the end of 2017, and an additional fall in searches for five-room apartments from 19% at the end of 2016 to 15% in the current survey. The frequency of searches for three-room apartments, on the other hand, rose from 33% at the end of 2016 to 34% at the end of 2017. In contrast, the demand for four-room apartments was almost double the demand for three-room apartments in 2010: 47%, compared with 24%.
"Excessive government intervention in the market"
"It can be seen that the market was very volatile in 2017 as a result of excessive government intervention in the real estate market," says Azimuth CEO Benny Keret. "In my opinion, there are two reasons for the fact that in the survey, the number of people searching for homes and the number of people who answered that they are considering starting to search for a home to buy rose substantially. One is the buyer fixed price plan, and the other is the measures aimed at harassing and increasing the burden on investors. A public atmosphere has been created of waiting for prices to fall, while the buyer fixed price tenders that promised quick results are meanwhile not providing what was hoped for. The processes are much longer than Israelis expected."
Where the change in the maximum price that buyers are willing to pay is concerned, Keret believes, "The figure proves that the public does not believe that prices have begun to fall; prices are perceived as rising slightly or staying put, despite the constant efforts by the government and the Ministry of Finance to lower them by force, which have been ineffective."
The Globes-Azimuth survey, which is conducted in the middle and at the end of every year, provides up-to-date data about the public's home purchasing plans. The survey is conducted through the Maagar Mochot research institute, headed by Prof. Ytzhak Katz, among 600 respondents, half women and half men, constituting a representative sample of the adult Hebrew-speaking population in Israel.
Is a yearly 3% increase any comfort?
More and more buyer fixed price tenders are being closed throughout Israel, but the housing prices index compiled monthly by the Central Bureau of Statistics continues to indicate a rise in prices everywhere in Israel, to the dismay of those expecting prices to fall. Here and there prices have fallen for a month during the past decade (15 times in the decade), but it has not happened over an entire year, and the index is climbing from month to month.
The positive side, as MK Roy Folkman (Kulanu) repeats on every possible occasion, is that the annual rise in 2017 was the smallest in years. The most recent housing index shows an annual rise of less than 3%, far less than the 8% rise in 2016.
Does this mean, however, that the market trend is really on the verge of a drop in housing prices? It is difficult to tell. The annual rate of increase is indeed the lowest since it hit 1.67% in July 2012. At the same time, from mid-2011 to mid-2012, together with the wave of social protest and the many subsequent promises (such as the housing chapter in the Tratjenberg committee's recommendations), the annual rate of increase in housing prices fell from 12-13% to only 0.2% in May 2012 (monthly housing prices also fell for four months during 2011). In the end, however, the public gave up on the promises, and by May 2013, the annual rate of increase in housing prices was already 9%.
Does this mean that the slower annual increase in housing prices is only temporary? Time will tell.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 2, 2018
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