Housing prices will not fall substantially in the near future, and may very well rise in high-demand areas like Tel Aviv and Jerusalem. Prices are likely to fall in the southern and Haifa districts, where substantial excess supply has accumulated in recent years, according to a residential real estate survey by Bank Leumi (TASE: LUMI) chief economist Dr. Gil Bufman and analyst Alon Kreis.
"The long-term rise in housing prices in Israel came to a halt over the past year. As of November 2018, the Central Bureau of Statistics' general housing prices index was down 2.3% from its level from a year before. At the same time, the decline in this index applies mainly to the fourth quarter of 2017 and the first quarter of 2018. In April-November 2018, there was no substantial change in the index. It was found that prices were stable, with no significant trend in either direction," the review states. Kreis and Bufman attribute this situation to the prolonged drop in demand for housing on the free market, with a corresponding slide in the supply of housing beginning in response.
"In the market for new housing, despite the decrease in sales on the free market, the volume of unsold privately initiated homes has been falling in recent months," the review states.
In the secondhand housing market, it appears that supply is also declining. As soon as move-up buyers reduce their activity on the market, the supply of homes that they sell also falls. Real estate investors reduced the volume of their housing sales, thereby contributing to a drop in the supply of secondhand homes available for sale," Bufman and Kreis wrote.
The number of homes built in recent years was relatively large, but Bank Leumi's economists examine whether the homes correspond to the level of demand in different regions. Their conclusion is similar to previous studies in the sector. In Jerusalem and Tel Aviv, there is major demand pressure, meaning that the supply does not meet the demand for homes. The situation in the central district is more balanced, with a tendency towards demand pressure. The situation in the northern district is evenly balanced between supply and demand, while excess supply has accumulated in the Haifa and southern districts, because construction there is higher than housing needs.
The economists make a distinction between "the Buyer Fixed Price Plan market, in which growth is rapid, with most of the housing starts and deals taking place in it, and the free market, in which the volume of sales is in a prolonged decline, combined with a drop in housing starts." In the second half of 2018, the number of new homes purchased rose again, following an increase in purchases in the Buyer Fixed Price Plan framework. On the other hand, the weight of move-up buyers and investors in the market is falling. The survey states that the reduced weight of these two segments in the housing market accounted for the fact that the steepest falls in prices over the past year were in the Jerusalem and Tel Aviv districts. Demand in these two districts is very dependent on wealthy investors, who vanished from the market, causing a sharp drop in demand for housing.
"Looking ahead, the stabilizing trend in housing prices, or at most a moderate decrease, is likely to continue, with support from housing completions. This is likely to remain at the minimum level necessary to fulfill Israel's regular housing requirements, 50,000 homes a year, for the next year or two, or slightly beyond that. At the same time, the housing price trend in the medium term will depend on government's housing policy and the macroeconomic environment," the Bank Leumi analysts conclude. They predict that prices will behave differently according to district, meaning that prices will fall in Haifa and the south and rise in Tel Aviv and Jerusalem.
Published by Globes, Israel business news - en.globes.co.il - on February 7, 2019
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