Real estate transactions plummet close to 20-year low in stalled housing market

The number of residences changing hands hits record lows in April, down 55% from last year, as prices and borrowing costs climb

Construction in Holon, May 2020. (100 via iStock by Getty Images)
Construction in Holon, May 2020. (100 via iStock by Getty Images)

The volume of home sales dropped by 55% year over year in April, falling nearly to the lowest levels in 20 years, according to a Finance Ministry report on real estate transactions released Sunday.

A significant drop in housing transactions has been recorded in recent months across the country, as prices and interest rates have climbed. This slowdown has affected new builds as well as secondhand properties in the private market and homes sold through government-subsidized programs like “Buyer’s Price” (Mehir Lamishtaken) and “Target Price” (Mehir Matara).

According to the monthly report by the office of the Finance Ministry’s chief economist, just 4,001 real estate transactions were recorded in April 2023, down from some 9,000 in April 2022 and roughly 11,000 in April 2021. It was the lowest figure since at least 2002, except for April 2020 — at the height of Israel’s first pandemic lockdown — with just about 2,000 home sales transactions.

Of the 4,001 transactions, nearly 1,500 were new builds, marking a 53% decrease compared to new home sales in April 2022, and over 2,500 were on the secondhand market, a drop of 57% on the corresponding period last year.

Real estate transactions in April were also 41% lower than in March, according to the report. Preliminary figures on transactions in May indicate a continued slowdown, the report said without elaborating.

Since the beginning of the year, the slump in transactions volume has been more pronounced in Israel’s central areas — where demand is much higher — than in so-called peripheral regions, where prices are typically lower, but the report noted that according to April’s figures, the drop in transactions is now being seen across geographical locations.

New apartment buildings under construction in the southern city of Beersheba on November 18, 2022. (Gershon Elinson/Flash90)

Property transactions in central Israel saw a 63% overall drop in April 2023 compared to April 2022, and a 59% fall in the sale of secondhand properties in Tel Aviv specifically.

Transactions for secondhand residential units dropped by over 50% in Haifa, Beersheba, and Jerusalem in April, compared to April 2022, and more than 60% in Rehovot, Netanya, and Hadera, areas associated with first-time or young buyers. Smaller drops were recorded in the new-build housing markets in these cities, but in Tel Aviv the decrease in new home purchases was over 60%, and it was more than 70% in the central region generally.

Overall, home purchases by young couples fell by more than half in April, according to the report, in both the market as a whole and as a percentage of purchases within the government-led subsidized programs for new homes.

These programs are only open to first-time buyers and give steep discounts on market prices, but the properties available have gone up in price as housing inflation and the cost of building materials have risen.

Although over recent months, housing inflation has fallen back from over 20% to 11% annually, this is still double the rate of general inflation. An average home costs almost NIS 2 million ($557,200) today, with prices in Tel Aviv and in central Israel closer to NIS 3 million ($835,778), according to government figures.

File: The Tel Aviv skyline (Miriam Alster/FLASH90)

Potential home owners generally need to fund a 25% down payment, as well as the increasing cost of a home loan. Interest rates have risen steadily since last April, to 4.75% from historically low levels which were designed to stimulate the market during the pandemic period. This has increased the costs of mortgage borrowing by around 40% and reduced the spending power of households.

Bank of Israel figures show that April saw the lowest levels of new mortgage borrowing since the beginning of the pandemic, at NIS 4.6 billion. In April 2020, buyers borrowed NIS 4.9 billion for mortgages.

According to Sunday’s residential market transactions report, there have also been marked falls of over 50% in home purchases off-plan, the buying of homes in advance of completion. This, in turn, is putting pressure on real estate developers’ cash flow, at a time when their finance costs are rising with the steady increases in borrowing rates. Declining  sales by developers are now resulting in lower levels of land purchases for new developments, according to the Finance Ministry’s analysis.

This is bad news for Housing Minister Yitzhak Goldknopf, who has stressed the importance of building more homes in order to open up property purchasing and to meet the demand for housing from a growing population. It means that the pipeline of new housing projects is likely to be reduced, adding to the pressure in the market which causes house prices to rise.

In recent weeks a committee has also been set up under the leadership of Prime Minister Netanyahu to tackle the rising costs of living, of which housing increases form a central part.

The Finance Ministry’s real estate report also noted that investor purchases (homes that are not a primary residence) fell in April by 60% year-on-year. The combination of sales and purchases reduced the proportion of properties held for investment overall by 300 homes in April, part of a total reduction of 3,000 residences since October 2021.

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