From the Central Bureau of Statistics to the Ministry of Finance and the Bank of Israel, the past two weeks have been full of reports and data on Israel’s residential real estate market. Some of the data astonished even veteran analysts in the field, with the biggest surprise being the renewal of home price increases at the end of 2023 and the beginning of 2024, despite an economic crisis as a result of the war and low levels of demand throughout 2023 alongside historically high supply.
For the benefit of readers, Buyitinisrael puts the data in order and maps out the 5 most important facts that anyone interested in Israel real estate should know:
1. Almost one-fifth of construction sites are closed
As is well known, with the outbreak of the Iron Swords War, the construction industry in Israel encountered a severe manpower shortage stemming from the ban on Palestinians from entering construction sites in Israel. Thus, about 100,000 workers were abruptly removed from the industry’s manpower, constituting the overwhelming majority of the workers who perform manual labor at construction sites known in Israel as “wet work” (formwork, ironwork, plaster, and flooring). To compensate for the shortage, the government approved increasing the quota of foreign manpower for the construction industry in Israel by tens of thousands of workers, to 65,000 workers, compared with about 20,000 who worked in Israel until October 6th.
However, four months after the approval of that decision, almost no additional foreign workers were added to the industry, and the actual number of workers who arrived in Israel today stands at just over 1,000 workers who arrived in Israel from India. The workers actually want to come, and about 20,000 of them were selected by the Israel Builders’ Association and found suitable for work in the industry. However, bureaucratic reasons currently seem to prevent them from coming to Israel.
A report published on Sunday by the Bank of Israel said that as of the end of February, 17 percent of construction sites in Israel were still closed due to the manpower shortage and that even in most of those operating, output is partial. This means that in the long run, the housing market is expected to suffer from a significant decline in the supply of homes.
2. Building starts remains high
Now, we come to the next surprise in the recently published data. Despite the severe slowdown in the industry throughout 2023, 62,000 new homes began to be built during the process, according to the Central Bureau of Statistics. The figure reflects a slight decline of 9% compared to 2022 when a record 68,000 starts were recorded. Still, overall, this surprised everyone, considering the difficult year that the industry went through. This includes high interest rates, low transactions, and a war that shut down construction sites completely for weeks.
Even more remarkable are the construction figures for the fourth quarter alone, during which construction began on about 14,100 apartments, a figure considered higher than average. Recall that this was the quarter at the beginning of the war, after which all construction sites were closed for almost a month, even before we discussed the consequences of the manpower shortage.
3. The supply of apartments is very high
The pace of construction remained high throughout 2023, together with the decline in demand throughout the year, helping the supply of homes increase dramatically throughout the year. According to the Central Bureau of Statistics, at the end of January 2024, about 68,000 new unsold apartments remained “on the shelf,” compared with 54,000 unsold apartments on the same date last year and 44,500 unsold apartments two years ago. This represents a 26% increase in the supply of new homes within a year.
It should be noted that unsold apartments are not equally distributed across all parts of the country. About 30% are located in the Tel Aviv district, which includes Tel Aviv and Gush Dan, and 25% are in the central region. That means most unsold apartments are in high-demand areas.
Overall, this is the second-highest figure in history, second only to the figure for the end of December 2023, a month earlier, which was only a few dozen housing units. Incidentally, this is the first time since the beginning of 2022 that the monthly figure does not indicate an increase in the supply of unsold homes, and the explanation for this can be found in the next section.
4. Home buyers are waking up
At the height of 2023, with few transactions, many predicted that 2024 would be the year of awakening in the housing market. However, these estimates were given before 7 October and the outbreak of the war that ensued. Nevertheless, despite the severe war and its effects on the Israeli economy, January data published by the Central Bureau of Statistics indicate that the forecast may be realized. During the month, 7,900 homes were purchased, the highest figure since July 2022. Of those apartments, 3,750 are new – the highest figure since May 22.
These figures come at the end of a year that was one of the weakest in the past decade, with only 66,000 transactions, reflecting a 35% drop in the number of transactions compared to 2022.
So what happened? Are we witnessing the beginning of a 2022-style rush for homes and a pricing frenzy? Possibly, but it’s best not to rush to conclusions based on just one month. It should be remembered that many of those who planned to purchase an apartment between October and December 23 ostensibly preferred to postpone the process in light of the events, and it is possible that these high figures are an expression of this.
5. Prices return to an upward graph
Here we come to the most surprising figure of recent weeks: renewal in the increase in home prices according to the home price index, and not just an increase, but a sharp increase! According to the index published by the Central Bureau of Statistics, prices jumped by about 2 percent between November and January in two months. If this increase continues, it will represent a dizzying rate of increase of more than 10% per year. Recall that this increase comes after a year of very moderate price declines, which peaked at 2.5 percent, and have already been almost completely offset by the current increase.
This is an extraordinary statistic mainly because of the difficulty in explaining it. With all due respect to the successful January home sales data, the manic days of 2022 are still far from returning – the country is still in an economic slowdown. The large investments that have been injected into the Israeli high-tech industry that led to a surge in home prices have not yet returned, interest rates are still high and make it difficult to take out mortgages, and the supply of unsold homes is still very large. So, how can such an increase be explained? It’s unclear, but we may have to wait another month or two to determine if this trend is real.
The bottom line is that the Israeli housing market is currently in a period full of changes and challenges. The cumulative data tell us that the housing market is strong, and despite the many challenges facing the Israeli economy, it continues to lean toward price increases. As buyers continue to crowd sales offices, and contractors find it difficult to increase supply due to manpower shortages, these price increases may well increase.
