Please familiarize yourself with the curve that scares the real estate developers these days – the ratio between the number of apartments left for sale in a certain month and the number of apartments sold in that month. The curve greatly illustrates the intensity of the crisis that the real estate market has fallen into in the current period, as it is beginning to resemble periods of recession in the market .
● Bank of Israel: The gap between apartment prices and rental prices continued to grow even in the second half of 2022
● The countries that close the real estate market to foreigners: “Houses for people, not investors”
U is the shape of the curve these days. This is a graph of the Central Bureau of Statistics (CBS) that describes the months of supply of the new apartments, i.e. how many months they are for sale, until they are sold.
This number is the product of the ratio between the total number of apartments left for sale at the end of a month and the total number of apartments sold during that month. The larger the total number of apartments left for sale and the smaller the number of apartments sold – this indicates that developers have difficulty selling the apartments they have in stock, and vice versa – the smaller the inventory and the number of apartments sold in a certain month increases – a sign that the developers manage to “throw away” the apartments in their possession quickly.
In 2021 we reached a record pace
In 2020, about 41,000 new apartments were sold, a similar number to that of 2019, despite the corona closures that occurred in 2020. In light of this, it is understandable that despite the high number, the rate of sales in 2020 was significantly faster than that of 2019, especially at the end of 2020, when the wave of increases began, both in terms of the number of transactions and in terms of prices.
As a result, the shelf life of a new apartment decreased from an average of 19.6 months at the beginning of 2019, to 10.9 months at the end of 2020. In 2021, the sales rate of new apartments skyrocketed and reached 58,000 apartments, an all-time high. As a result, the shelf life of a new apartment on the market decreased to only nine months. However, starting at the end of 2021, a few months before the series of interest rate hikes began – the monthly amount of sales of new apartments began to drop rapidly, and 2022 should end with the sale of new apartments amounting to approximately 39.5 thousand, a decrease of over 30% compared to the record year 2021 .
The result – within about a year and a half, the shelf time of the apartments jumped steeply to double the amount of months it was when the market was at its peak. Today, the number of months on the shelf of an apartment reaches 19, a number that goes back to 2019.
What creates the U-shape of the graph is the steep increase in the number of months of supply, which in such a short time changed this market dramatically, and put the real estate developers in a dilemma: what to do to continue selling apartments with minimal price reductions. The last apartments of the CBS, a decrease in new apartments was already evident at a rate of 2.4% – which is a significant monthly decrease.
Entered the waiting position
What is the meaning of 19 months shelf life for a new apartment? If we compare historically, we can see that this is a significant number. In the 2005-2007 depression and during the social protest of 2011, the number of months of supply for an apartment reached about 14.5; In 2014, when the Minister of Finance at the time, Yair Lapid, promoted the 0 VAT law, the market stopped, and went into a six-month wait, and then the months of supply of new apartments increased to 16; immediately after, when the public realized that this plan would not be fulfilled, it attacked the market And during the peak period of mid-2015, the months of supply dropped to 9.2, similar to what we experienced in 2021.
On the other hand, in 2009 and 2010, when apartment prices rose a lot – about 20% in 2009 and 14% in 2010 – the number of months on the shelf was even lower than it was in 2021 and reached seven to eight months. This is because the supply of apartments was much lower than today.
The U-curve expresses the dangerous combination of an increase in the number of shelf months in a short time. The entrepreneurs were not prepared for such a scenario, and it is hard to believe that they could have prepared for a market that experienced a screeching halt. What they currently have to their credit is all the fat they have accumulated in recent years, in the form of a nice profitability that resulted from all the years of price increases, but for some of them, who are overleveraged, this fact may not help.