The prices of new apartments in the free market registered a decrease of about 5.8% in 4 months, a murderous rate of about 18% per year, and a very serious industry warning. This is according to the CBS data published today (Friday). This is at the same time as a monthly decrease of 0.2% recorded in the total index of apartment prices, which opened 2023. At the same time, rental prices continue to rise and put pressure in the direction of further increases in the rate of inflation and interest rates. The political reactions that come in the face of the data , are alarming, in view of the disregard they reveal of inconvenient data.
Shortly after the interest rate increase, the president of the Boni Ha’aretz Contractors Association, Raul Sargo, responded, “The Israeli government is absent from the economic field and the housing market, just before the peak of a crisis we have not yet experienced. The responsibility lies with the country’s leadership is to provide incentives that will not stop the construction starts due to the tremendous lack of apartments and help the needy Housing. As a representative of the industry, I tell you that if interest rates continue to rise, many contractors will lose their financial independence and some will collapse. This is an event that can reach the pocket of every citizen in Israel with a drop in the ability to build and a jump in housing and rental prices.”
This is a desperate, sharp and unusual response by one of the strongest economic organizations in the country, but the numbers of the CBS are also unusual, and reflect well the difficult atmosphere that prevails in the construction industry, which these days is in the midst of a heavy crisis. Is Sargo exaggerating by warning of a “crisis” We haven’t experienced yet”? Not sure. A few months ago at Globes we analyzed the emerging crisis in the construction industry, and we came to the conclusion that it is a crisis that has not been seen here for decades.
And if we translate these things into numbers, the prices of the new apartments sold on the free market (that is, excluding the apartments sold as part of the “resident price”) in the four months between October and January, decreased by 5.8%, as mentioned, according to the CBS data. These data are published monthly, But the CBS did not compile an index of them; The official housing price index of the Central Bank, which includes the apartments sold at “residential price”, recorded a decrease of about 2% in these months, so it is understood that the “residential price” apartments hide the true dynamics of the price drop.
As mentioned, the annual rate of price declines for the new apartments that are sold at market prices, as measured in the months of October 22-January 23, reaches approximately 18%. This pace justifies the results of Rami’s recent land auctions, which end at prices less than half of the appraiser’s estimates. Developers who anticipate a fall in apartment prices in the coming years, take this into account in the land prices.
We will return to the general housing price index, which opened 2023 (this is the January-February index), with a decrease of 0.2%. Against the background of the large falls in the prices of new apartments – this is a figure that did not surprise anyone. More than the rate of decline, the addition of the “minus” is the most prominent thing in the current index, but it is something that is more symbolic. Clear signs of this were evident in the previous indices which also aspired to zero, only from the positive side of the number axis. And if we learn from the fate of the previous indices, this minus may also change and possibly even turn into a small plus in the index updates in the next two months, because the two penultimate indices recorded slight increases, and in a situation where the amount of transactions is low – which is exactly the situation the market is in today – the updates can be at high rates relatively. Therefore, the figure in itself is not fundamentally different from its two predecessors and overall the prices of apartments remain more or less in the same place, as 3 months ago.
What is more disturbing is the rental market. The rent section without public rent increased by 0.5% in March, but the housing services index, which is based on rental prices, increased by 0.7% in the same month, and is one of the main culprits in the inflation rate recorded last month.
A 0.7% increase in this index in March is not considered high or abnormal. Passover Eve is one of the popular dates for signing new leases and the months of March are characterized by relatively large price increases. What is worrying is that for over a year there has not been a single month in which rental prices have decreased, which is unusual, since in a normal year there are 3-5 such decreases, at different rates.
Another issue that is troubling and worrying is the reaction of the political system to the findings. The Minister of Finance, Bezalel Smotrich said that “together with the decrease in housing prices that is possible due to the increase in supply by preserving construction starts despite the increase in interest rates, they are first and foremost news and their meaning is one – the responsible policy that we have put in place is beginning to bear fruit, God willing.”
We will spare the “whistleblower” a comprehensive examination of things, because otherwise you will not stop blowing the whistle. The increasing supply of apartments is a product of an inventory of apartments that has been inflated due to the decrease in demand, while construction starts are in a sharp downward trend; The interest rate hikes hurt the construction companies, as well as the buyers, causing a decrease in the amount of transactions and construction starts and thus they led to the drop in prices – not any government policy. In fact, if we accused the previous government of copying a failed housing policy from its predecessors, the current government does not show that it has a housing policy at all, and certainly not one that deals with the new situation in which the economy finds itself.
Another worrisome response is the tweet by the former Minister of Housing, Ze’ev Elkin, who said: “We said that in 2023 the increase in housing prices would be curbed and here it is: today it was announced that apartment prices will decrease in the months of January-February 2023. It is important to keep the pace. Minister Goldknopf, insist this year as well On more than 100,000 marketings and no less than 30,000 apartments at a discount! And don’t agree to the Treasury plan to severely damage discounts for young couples.”
Here, too, it was possible to find a lot of work for a “whistleblower”. Apartment prices registered a “minus” only because of the interest rate. Not because of the marketing and certainly not because of the apartments assuming they were sold today – and you know when they will be sold. And the recently published studies by the Bank of Israel and the Knesset’s Research and Information Center on “Resident Price” came out with a difficult criticism of the discounted apartment lottery system.
These reactions fully justify the feeling conveyed by the president of the Boni Ha’aretz Contractors Association, that the government is absent from the housing sector. In a situation where apartment prices are going down a bit, but interest rates are rising at a rapid pace and rents are rising at a rapid pace – everyone suffers: companies, the homeless and apartment owners who took out mortgages. Well can’t get out of it.