Apparently, when you read the data of the Central Bank, even last February, housing prices apparently still rose. They recorded a monthly increase of 0.1% (according to the data). True, the annual rate of increase is very moderate. Instead of a 20% increase, the increase is already ‘only 14.6%. The calculation is carried out as an estimate of the last 12 months. The month of February of last year was released and a new figure entered in its place. Instead of a monthly increase of 2% as was the case almost every month last year, the increase is now only 0.1%, almost stable. If you take the four months the last – the increase in housing prices is almost completely zeroed out, but in the annual aggregate it is still high.
The real estate market is already in decline – a dramatic decrease in the volume of transactions, a decrease in their price in recent months. In fact, the prices of new apartments are already down 5-6% (for expansion) and since then there has actually been another half a percent decrease. Say, wait, but the figure of The CBS showed that in the last month the prices of new apartments did not decrease but remained unchanged. This is true, but note that this is a figure that includes the transactions of the government subsidy programs, price per resident (which did not help lower housing prices in the last decade. They only burned 30 billion shekels of the taxpayers, without it being reflected in the budget because the state seems to have ‘given up’ revenues We need to break down this problematic sentence, just remember that giving up income is like spending. There is no real difference. It’s money that doesn’t enter the state’s balance sheet.) If you deduct the price per tenant from the data, you will get that even in the last month, the prices of new apartments decreased by 0.5%.
The first lie about the housing sector: ‘Housing prices are only rising’
What it means? That the legend that has been circulating in Israel for the past decade that housing prices only go up and cannot go down is, to put it mildly, a complete lie. Housing prices also know how to fall. Here it happens. By the way, this also happened in Israel between 1998 and 2007. A nominal decrease of 15% and a real decrease of 25%. But that is distant history. Nobody remembers it and nobody wants you to remember it. The contractors said that the prices are only going up, so you have to run to buy an apartment no matter what the price is. They were right for many years, but it was at best a self-fulfilling prophecy and at worst – an attempt (and success) to panic the Israeli public, so that it will be forced to absorb the fuel-increase and possibly also the upward movement of housing prices.
One can only see the hysterical messages, the cries of distress of the contractors, that the Bank of Israel is destroying the economy to understand the intensity of the panic that the contractors are in now. It is only important to say – the contractors repeatedly attack the Bank of Israel. It is fortunate that they do not make the decisions, because they are actually trying to harm the Bank of Israel, to make it stop raising interest rates in order to stop inflation (which is a much greater danger to the public than the rise in real estate prices, because inflation erodes money and harms the entire economic conduct of the state and all A purchase that households have – here is the explanation of the great danger of inflation). The contractors try to normalize the reality of high inflation and say that it is ‘not that bad’. But it is serious – because they are wrong, misleading and above all – lying to the public.
Here is a fresh example from last week:
and one more:
So now housing prices are falling. But of course no one knows how much housing prices will fall and how long the decline will last. Just like in the capital market, at some point the buyers in the housing market will come back, decide that the prices are already low enough for them to buy and again the demand will exceed the supply. But in the meantime, the collapse in real estate transactions shows that demand is shrinking.
The second lie: ‘The demand for housing is completely rigid’
And this leads us to another lie that has been spread in Israel in the last decade. They tell you that ‘demand is completely rigid’, meaning that people want to buy an apartment and they will buy an apartment anyway, no matter what the price will be. So here, it turns out not to be true. People react to prices. This is the power of the price mechanism in a free market – the price shows everyone the forces in the market, the supply versus the demand. At some point people cannot afford to pay these inflated prices. The only question is what is the public’s breaking point. When the interest rate in the economy was zero, money was cheap, it was possible to take out a mortgage and the monthly repayment was somehow reasonable, even though the average mortgage amount rose and rose to a million shekels (compared to 700 thousand just a few years ago). But the increase in interest rates makes money more expensive – the monthly repayment jumped by NIS 1,000-1,500 per household, which is a lot of money.
Here is what we wrote six months ago, when interest rates were just starting to rise and real estate prices were still soaring every month: “Apartment prices will not rise forever. Someday it will stop. why? Because at a certain point almost no one in Israel will be able to buy an apartment, not even with a huge and monstrous mortgage. For the sake of illustration – if an average apartment costs NIS 10 million, how many young couples in Israel will be able to purchase an apartment? Not much, if at all.
“The question is, of course, what is the maximum price that won’t allow people to leverage themselves any more, no matter how hard they try. Apparently this limit is close – people are trying to do eights in the air to get financing – to mortgage the parents’ apartment, to take out an additional loan beyond the mortgage, at the expense of a fund Further education or retirement, to reach the minimum equity for the apartment, and to scrape money from friends and acquaintances. But at some point, no matter how much money they manage to raise from around – it simply won’t be enough.
“At this point, prices will stop, because no one will be able to purchase an apartment, and it is very possible that this threshold is close. The Bank of Israel’s interest rate increases in this respect bring us closer to this point, because when the monthly repayment increases, then the percentage of the mortgage payment from the person’s/family’s monthly income also increases He is – and you can’t take out mortgages on which the repayment makes up more than 50% of the family’s income (and rightly so!), so fewer people can take out mortgages – to the point where no one can.”
In the meantime, here are real estate transactions from the past week:
Rosh HaAyin
5-room apartment, Nellie Zaks Street, 135 square meters, 11 square meters balcony, 3rd floor out of 4, parking, elevator, sold for NIS 2,875,000
5-room penthouse, Sheika Ofir Street, 160 square meters, 2 balconies of…, floor 15 of 15, parking, elevator, sold for NIS 4,250,000
4-room apartment, Ofra Haza Street, 104 square meters, 12 square meter sun terrace, 9th floor out of 20, parking, elevator, sold for NIS 2,715,000
Tel Aviv
3-room apartment, Maafili Agoz Street, Avni Hen neighborhood, 67 square meters, 4th floor out of 4, sold for NIS 2,145,000
Afula
Two-family house, 5 rooms, Oren Street, 140 square meters, garden 197 square meters, parking, sold for NIS 2,840,000
Mini penthouse 6 rooms, Katzir Street, 150 square meters, balcony 140 square meters, floor 7 out of 8, parking, elevator, sold for NIS 2,030,000
Kiryat Malachi
5-room apartment, Nachalat Har Chabad Street, 115 square meters, 3rd floor out of 3, sold for NIS 1,360,0000
Nahariya
3-room apartment, Halutz Street, 72 square meters, 2nd floor out of 4, parking, sold for NIS 800,000
Haifa
4-room apartment, Einstein Street, Ahuza neighborhood, 115 square meters, 2nd floor out of 3, sold for NIS 1,570,000
3-room apartment, Ahad Ha’am Street, Herzliya neighborhood, 85 square meters, 3rd floor out of 3, sold for NIS 720,000
5-room apartment, Gat Street, Ahuza neighborhood, 145 square meters, floor 3 out of 5, parking, elevator, sold for NIS 3,560,000
Yavne
5-room garden apartment, Hasira Street, 131 square meters, garden 150 square meters, floor 1 of 8, parking, elevator, sold for NIS 3,785,000
5-room apartment, Hanamal Street, 122 square meters, 25 square meters balcony, 8th floor out of 22, parking, elevator, sold for NIS 3,300,000
The data was collected from Rimex and the Tax Authority data.