Record number of homes sold in April, down 55% on last year, while prices and borrowing costs rise

Construction sites in Holon (Credit: 100/iStock/Getty Images)

The volume of home sales has fallen by 55% compared with April last year, almost to the lowest levels in 20 years, according to a Ministry of Finance report on property transactions published on Sunday.

A significant fall in property transactions has been recorded across the country in recent months, as prices and interest rates have climbed. This slowdown has affected new builds as well as existing homes on the private market and homes sold under government-subsidised schemes such as the ‘Buyer’s Price’ (Mehir Lamishtaken) and the ‘Target Price’ (Mehir Matara).

According to the monthly report from the Ministry of Finance’s Chief Economist’s Office, only around 4,001 property transactions were recorded in April 2023, compared with almost 9,000 in April 2022 and around 11,000 in April 2021. This is the lowest figure since at least 2002, with the exception of April 2020 – at the height of Israel’s first pandemic – when barely 2,000 housing sales were recorded.

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Of the 4,001 transactions, almost 1,500 were new builds, marking a 53% fall on new home sales in April 2022, and more than 2,500 were on the second-hand market, a 57% fall on the corresponding period last year.

In addition, as the report shows, property transactions in April were 41% lower than in March. Preliminary figures for transactions in May indicate a sustained slowdown, according to the report, which does not give any further details.

Since the beginning of the year, the collapse in the volume of transactions has been more pronounced in the central regions of Israel – where demand is much higher – than in the so-called peripheral areas, where prices are generally lower. However, according to the April figures, which are included in the report, the decline in transactions is now being observed across all geographical areas.

Apartments under construction in the Ramot neighborhood of Beersheba in August 2018. (Credit: verbaska_studio via iStock by Getty Images)

There was an overall drop of 63% in real estate transactions in central Israel in April 2023 compared to April 2022, and a 59% drop in the sale of second-hand goods in Tel Aviv specifically.

Transactions for second-hand residential units fell by more than 50% in Haifa, Beersheba and Jerusalem in April this year, compared to April 2022, and by more than 60% in Rehovot, Netanya and Hadera, localities generally associated with first-time buyers or young buyers. Smaller declines were recorded in the new housing markets in these cities, but in Tel Aviv the decline in new housin

Overall, home purchases by young couples fell by more than half in April, the report found, both in the market as a whole and as a percentage of purchases under government-subsidized programs for new housing.

These programs are only open to first-time buyers and grant significant discounts on market prices. But the price of available goods has increased due to rising real estate inflation and the cost of construction materials.

Although real estate inflation has fallen in recent months from more than 20% to 11% per year, it remains twice as high as general inflation. The average house today costs nearly 2 million shekels, with prices in Tel Aviv and central Israel closer to 3 million shekels, according to government figures.g purchases exceeded 60%, and it was more than 70% in the center of the country in general.

View of the Tel Aviv skyline (Credit: Abir Sultan/Flash 90)

Typically, prospective homeowners must pay a 25% deposit and face the rising cost of a home loan. Interest rates have been steadily rising since last April, rising to 4.75% – after reaching historic lows set to stimulate the market during the pandemic. This led to an increase in the cost of mortgage loans by around 40% and reduced the purchasing power of households.

According to data from the Bank of Israel, new mortgage loans reached their lowest level since the start of the pandemic in April, at 4.6 billion shekels. In April 2020, buyers took out mortgage loans worth NIS 4.9 billion.

According to Sunday’s report on residential market transactions, considerable falls of more than 50% were also recorded in off-plan house purchases, i.e. purchases of properties before they are built. This situation affects the cash flow of real estate developers, at a time when their financing costs are increasing due to constant increases in borrowing rates. According to the analysis of the Ministry of Finance, the drop in sales by real estate developers is now reflected in a reduction in the number of land purchases for new developments.

This is bad news for Housing Minister Yitzhak Goldknopf, who has stressed the importance of building more housing to encourage property purchases and meet the housing demand of a growing population. This situation risks reducing the number of housing construction projects, which will increase pressure on the market and lead to an increase in property prices.

In recent weeks, a commission has also been established under the leadership of Prime Minister Netanyahu to tackle the rising cost of living, of which rising housing prices take center stage.

The Ministry of Finance’s real estate report also found that investor purchases of housing (dwellings that are not primary residences) fell in April by 60% compared to the previous year. The combination of sales and purchases reduced the proportion of properties held for investment by 300 homes in April, part of a total reduction of 3,000 homes since October 2021.