The expression "last in, first out" mainly applies to accounting for stocks, and to companies undergoing downsizing, but it also describes the behavior of the real estate market in the periphery of the country. Communities in the periphery are generally the last to see price rises when the market is flourishing, and the first to see price falls in a slump.
In the current cycle of Israel’s real estate market, the periphery did indeed join the rising trend in prices two-three years after the center of the country, but, as it appears now, in the early stages of the crisis developing in the market, it is actually Tel Aviv and neighboring cities that are leading the falls. What happened?
The current drought in the Tel Aviv housing market is something that has not been seen since 2018, which was a very weak year. In March-May this year, just 245 homes were sold in Tel Aviv, 56% fewer than in the corresponding three months of 2022. In the Greater Tel Aviv area, the decline was 60%. These are just initial figures; the full picture will emerge only later.
In Bat Yam, the decline in the number of homes sold between March-May 2022 and March-May 2023 was 67%, to just 93. In Ramat Gan, the decline was 78%, from 709 to 158. This took place in the context of a nationwide market in which there was a steep decline between these two periods, but amounting to 46%. In the Jerusalem and Haifa districts there were sharp falls as well, of 52% and 50% respectively, while in the central district the fall was in line with the national figure, at 46%.
Meanwhile, the districts furthest from the center moderated the national decline. In the southern district, sales fell 26% between these two periods, while in the northern district the decline was 30%.
As mentioned, this is not the usual pattern; the down part of the cycle is usually led by the periphery.
Prices in recent months have also shown exceptional movements. The falls in prices have been led by the high-demand areas of Tel Aviv and the center. In Tel Aviv, prices have fallen by 1.4% in six months, while the central district has posted a 2.6% decline in three months. It is actually in the northern district that prices continue to rise, by 2.8% in the past six months. In Haifa and Jerusalem, prices rose by fractions of a percent this period, while in the southern district they fell, to a similar degree.
The "last in, first out" rule of the residential real estate market has thus been broken, both in transaction numbers and in prices.
So what is going on in the market? Why have Tel Aviv and its surroundings become real estate ghost towns? To understand this, another general rule of the Israeli real estate market needs to be invoked, which is that in high-demand areas the supply of homes in low, whereas supply is high in the periphery.
This rule too has been broken lately. Of a record 57,000 unsold dwellings, 30% are in Tel Aviv, and 24% in the central district. Less than a quarter of the unsold dwellings are in the periphery.
The likely explanation is that the boom in Israel’s technology industry brought many buyers to the real estate market who were prepared to pay very high prices for apartments in urban renewal projects in the Rova 3 and Rova 4 neighborhoods in the north of Tel Aviv. The average price of a four-room apartment in these neighborhoods in the first quarter of the year reached NIS 4.9 million, and deals at around NIS 6 million were not uncommon.
Developers ramped up activity in Tel Aviv, on the basis of the high prices and high demand, and produced a glut of apartments, but now the situation is that people cannot afford those prices. The result: whereas in the peak year of 2021, an average of 332 new apartments were sold in Tel Aviv monthly, in the first five months of 2023 average monthly sales were just 83, and it is quite conceivable that the number will continue to fall, and prices with it.
Published by Globes, Israel business news - en.globes.co.il - on July 16, 2023.
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