A decrease of 42% in the volume of new apartments purchased in January, and of almost 50% in the volume of mortgages taken out in February, signal that the crisis the real estate market has entered is one of the worst the market has known in recent decades. This is because, despite the dramatic declines, the crisis is only at its beginning.
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This week, the last monthly housing price index for last year will be published, which is expected to be around zero, and may even indicate slight decreases. However, the most intriguing index in this regard is the index of new apartment prices – from the newly published data from the Central Bureau of Statistics, it appears that the entrepreneurship and construction industry is subject to a painful fall.
Useless promotions
A seemingly optimistic figure is a record of at least four years in the supply of new apartments recorded last January, approximately 18% more than in January 2022. However, this figure is due both to a jump in construction volumes in recent years, but also to large decreases in the number of transactions registered since interest rates began to oppress on the buyers. Therefore, a supply of almost 53,000 new apartments that the developers are unable to sell – a record of at least four years – is evidence of the plight of an industry in which the developers are stuck with a large inventory of apartments without buyers.
In recent months we have witnessed many promotions and price reductions among the entrepreneurs, but even these do not succeed in returning the buyers to the market. The reason: the cloud of economic and political uncertainty oppresses and paralyzes. This creates a situation where apartment prices fall, but no one can benefit from the situation – neither the buyers who fear nor the developers.
Low in apartment sales
How serious is the crisis? 2,574 apartments sold in January of this year reflect one of the lowest numbers the market has seen in the last four years. The other times when lower monthly sales were recorded were during the Corona lockdown in 2020 and during the Tishrei holidays in October 2022.
The housing market is sinking into a heavy stagnation quickly. If until a few months ago we were talking about a “recession”, then it changed to a “surge”, and then to a “decline”, while now we can already talk about a fall. Between the months of October 2022 and January 2023, the amount of apartments purchased was 53% less than the amount purchased in the four corresponding months last year, and 37% less than the amount purchased in the four corresponding months from two years ago.
In fact, according to the CBS, the amount of purchases of new apartments has been decreasing at a monthly rate of 4.3% since August 2021 – a figure that describes a significant decrease.
Be careful to take her place
Another evidence of the crisis to which the industry is subject is the mortgage data for the month of February, published by the Bank of Israel. According to these data, last month there was a 49% decrease in the volume of mortgages taken, compared to February 2022, and here too the market has returned to its level from 4-5 years ago.
Last month, mortgages in the amount of NIS 5.73 billion were taken from the banks, the lowest amount since the first corona shutdown that paralyzed the economy in April 2020.
In the previous months we reported a consistent decrease in the level of mortgages taken out. Between November 2022 and January 2023, there was a 30%-40% decrease in the volume of mortgages taken, compared to the corresponding months in previous years (in October the decrease was 43% due to the Tishrei holidays). The current decrease is much higher, and therefore it seems that the interest rate increase procedure, accompanied by the heavy cloud due to the consequences of the falling shekel exchange rate, the rising inflation and the problematic political situation are increasingly suffocating the market, since in such times the motivation to purchase apartments decreases.
Several factors make the current crisis more serious than other crises: first, it hit the developers at a time when they were least prepared, when they are burdened with liabilities to banks and housing stock that they have difficulty realizing; Second, he landed on the branch with lightning speed. Just a year ago, the Bank of Israel interest rate reached 0.1%, and the dollar exchange rate to less than NIS 3.3. Today it seems like distant history; And a final factor – the generators of the crisis are very far from being exhausted, so the way down seems certain.