The apartment price index published this week rose by 0.2%. This was the headline in most places, but the index without the price per inhabitant expresses a 1.9% drop in the prices of new apartments, and in practice the prices fell more, the CBS does not take into account the discounts that are worth 1-2% of the apartment’s value. We conducted an interview with Doron Seig from the CBS, the person who is responsible for the apartment price index, and we understood the contractor’s method of presenting incorrect data – they are ready to give you very large benefits – “take parking, take double parking, central air conditioning, but that’s the price”. It is clear that in practice this means that the price of the apartment has dropped a lot. But in the Central Bureau of Statistics they do not change the price in their reports, they do not refer to “gifts”, to promotions. So if, for example, a family bought an apartment in a building half a year ago for NIS 3.5 million, and two weeks ago another family bought an identical apartment for NIS 3.5 million, only with central air conditioning, a quality kitchen and more parking, then as far as the CBS is concerned, the price has not changed. But in reality, The price of the apartment decreased – if these benefits are worth NIS 150,000, then the apartment was bought for NIS 3.35 million – this is a 4.3% decrease.
Take these discounts that have only been increasing in recent months, add the fact that the new apartment price index fell by 1.95 according to the latest figure, following the 2.4% drop in the previous index, and you will get that the new apartment prices have fallen by 6% from the record. We estimated a decrease due to the increase in interest rates and the great and real difficulty of the public to buy after a jump of 20% and here it comes and with force.
But a caveat should be made – this does not happen with apartment prices in the price plan for the tenant-apartment at a discount. There the apartments are at a discounted price anyway, about 20%-30% below the market price and there are places where the discount is bigger, and more importantly – it hasn’t really seeped into second-hand apartments yet. Why? Because the sellers live in the feeling of “headlines”, they succumb to the contractor’s trick with the promotions and believe that there is a brake and there is no decrease in the price and they must admit – this is a sophisticated trick because when the contractors do this, they mostly manage to regulate the decrease. They broadcast to the public that there are no sharp declines and this is how they “work” on the market, which is also influenced mainly by expectations. But they break and second hand sellers will break too. It is impossible for there to be a disconnect between second-hand apartments that apparently did not go down, or went down less, compared to the already falling prices of new apartments.
What can be said and is always true – don’t compromise so quickly, the power has passed into the hands of the buyers. Some of the contractors are under a lot of pressure, so don’t give in, check carefully and also – don’t be quickly tempted by the discounts-benefits, there are quite a few who raise the price by 2% and then give a discount, you’ll be surprised there are buyers who fall for it.
A stop in the investigation of brakes on transactions
A 20-year low in second-hand apartments, a 10-year low in first-hand apartments – to be expanded), a drop in the scope of monthly mortgages (here), and in recent months also a drop in housing prices. Officially, as mentioned, you still see a slight monthly increase of 0.2% in the last month, but in the new apartments (minus government price subsidy programs) the drama is in full swing: a 2.4% decrease in November, a 1.9% decrease in December (the figures from the Central Bureau of Statistics are delayed by a month ).Also in January, the trend continued, according to preliminary data from the Ministry of Finance. So in practice there is already a drop of more than 4% in the prices of new apartments. We will just remind you that these are the ‘dry’ data, that is, without taking into account additional promotions of the contractors and there are Another 1-2% discount (here’s the explanation).
So the contractors have been pimping you for more than a decade that there is not, will not be and cannot be a price drop in Israel – this is not true. We have gotten used to the fact that housing prices only go in one direction, but they ‘forgot’ to tell you that there is one factor that is responsible for this: the zero interest rate of the Bank of Israel (and all the banks in the world). Housing prices in Israel and in the world soared to new highs because the interest rate in the economy was zero and therefore the money-financing-mortgage was cheap. So people took out more and more loans, leveraged themselves into the sky to buy an apartment, and remember that everyone said that this situation could not change. There is only one problem: they worked on you. Here, the interest rate in the economy rose sharply – and everything became more expensive. The monthly repayments jumped by NIS 1,000-1,5000 per month (and they will become more expensive again next Monday), or if you want: they became more expensive by dozens of percent. A mortgage with a repayment of NIS 5,000 per month became more expensive by 20%-30%. A mortgage of NIS 4,000 per month became more expensive by 25%-37%.
Already more than a year ago, we pointed out the reason for the change of direction in housing prices and even said when the price increase would stop: when interest rates in the economy would rise, when financing would become more expensive. We didn’t invent it of course. This is how the economy works. The governments tried for a decade to subsidize apartments and increase the supply, and failed to create change. The change happened suddenly and in such a sharp way that it is absolutely clear that the only reason for this extreme change is the increase in the Bank of Israel’s interest rate – even the Bank of Israel has already been forced to admit this.
We also warned in those days that it would explode in the end and that those who take out a mortgage with a high component in the prime rate will be harmed (and the Bank of Israel encouraged them to do so a moment ago by giving them the option to take 2 times the mortgage in the rate of the prime rate – the one that just rose sharply in the last year, here is the warning and the criticism of the move of Bank of Israel).
Those who bought an apartment in the last year or two are now coming to the government with complaints, ‘Save us’, ‘Help us’, ‘Our repayments have become very expensive’, ‘We are going bankrupt’ – this is obviously only expected to increase as the pressure and difficulty increases. They are justifiably angry, they were not told the truth. It’s just a shame that they didn’t understand what they were signing when they took the mortgage, it’s a shame that they didn’t check and analyze the meaning of the biggest commitment in life that they took on.
In this respect, we don’t have good news (maybe just a little). The Bank of Israel is expected to continue raising interest rates in the economy this coming Monday. Following the high inflation data published last Wednesday, economists have raised their expectations and they estimate that the Bank of Israel will raise the interest rate by 0.5%, and not by 0.25%, as previously thought. We will find out the answer on Monday. This is of course the bad news. The continued increase in interest rates in the economy will make it even more difficult for mortgage holders.
So what’s the upside? That this story is probably about to end. That is, you are already forced to absorb the big jump in the monthly repayment and are absorbing it. But this does not mean that this refund will cost an additional NIS 1,500. I mean, now you are already close to the ‘worse case scenario’. It is unlikely that the interest rate in the economy will rise by another 4%, but by another 1%, maybe less. The Bank of Israel itself drew the limits of the ratio – that the real interest rate be positive. That is half a percent above the expected inflation. In other words: when you hear that inflation is back under control, that it drops to 2-3%, it will already be an encouraging sign that one, the interest rate will no longer rise, and two, it may even start to fall, and this will make your monthly repayments easier. So there is hope, but it will take more time. The question is of course only how much. The Bank of Israel itself estimates that this is about one to two years.
In the meantime, here are real estate transactions from the past week:
Tel Aviv
5-room apartment, Shetolim Street, Park HaDorom neighborhood, 116 square meters, 12 square meters balcony, 16th of 18th floor, parking, elevator, sold for NIS 3,490,000
Givatayim:
3.5 room apartment on Kiryat Yosef Street, 87 square meters, 3rd floor out of 4, with elevator, no parking, sold for NIS 2.98 million
A 2.5-room apartment on Arad Street, 73 square meters, 3rd floor out of 3, without elevator, with parking was sold for NIS 2.63 million
Beer Sheva
3-room apartment, Bnei Or Street, neighborhood B, 76 square meters, 2nd floor out of 3, sold for NIS 725,000
3-room apartment, Dov Yosef Street, neighborhood 11, 75 square meters, 4th floor out of 4, sold for NIS 659,000
3-room apartment, Yohanna Jabotinsky Street, Neve Ze’ev neighborhood, 133 square meters, 10 square meters balcony, 4th floor out of 11, parking, elevator, sold for NIS 1,300,000
Two-family house, 4 rooms, Huma and Migdal street, neighborhood C, 83 square meters, parking, sold for NIS 1,400,000
Rosh HaAyin
4-room apartment, Bayer Street, 90 square meters, 8 square meters balcony, 4th floor out of 5, parking, elevator, sold for NIS 1,920,000
4-room penthouse, Haim Herzog Street, 160 square meters, 60 square meter balcony and another 27 square meter balcony, floor 21 out of 21, parking, elevator, sold for NIS 4,180,000
5-room penthouse, Upper Gertrude Street, 160 square meters, two 100 square meters balconies, 6th floor out of 7, parking, elevator, sold for NIS 3,175,000
Mini penthouse, Haim Weizman Street, 137 square meters, 38 square meters balcony, 4th floor out of 6, parking, elevator, sold for NIS 3,500,000
4-room garden apartment, Maayan Street, 150 square meters, huge garden 565 square meters, ground floor out of 12, sold for NIS 4,020,000
Kfar Saba
7-room two-family house, Nechama Handel Street, the green neighborhood, 270 square meters built on two levels, 220 square meters garden, swimming pool, parking, sold for NIS 8,500,000
4-room apartment, Ostoshinsky Street, city center, 116 square meters, 12 square meters balcony, floor 1 of 5, parking, elevator, sold for NIS 2,850,000
Netanya
5-room apartment, Raziel Street, 126 square meters, balcony 26 square meters, floor 8 out of 9, parking, elevator, sold for NIS 2,999,0000
4-room apartment, Rabbi Kook Street, 90 square meters, floor 7 of 7, parking, elevator, sold for NIS 1,800,000
2.5 room apartment, Ma’afilim Street, 52 square meters, ground floor out of 6, sold for NIS 1,250,000
Terraced cottage 6.5 rooms, Maza Street, North Netanya, 180 square meters, garden 30 square meters, parking, sold for NIS 3,300,000
Lod
3-room apartment, Shlomo Hamelech Street, 55 square meters, 3rd floor out of 3, sold for NIS 1,060,000
The data was collected from Rimex, Anglo Saxon and the Tax Authority data.
