Although home prices in Israel have stopped rising, upward graph may soon return

Alongside the curbing of home prices in Israel, developers have started to significantly reduce the volume of construction and are cutting back on the purchase of land – with unsuccessful auctions even in high-demand areas. The concern is that on the day that homebuyers return to the market, there will be an insufficient supply of homes waiting for them, which may lead to a renewed increase in prices.

The year 2023 brought with it a change in the trend of home prices in Israel. After almost two and a half years of sharp and continuous increases in home prices, the last two indices that were published show significant moderation. Indeed, the CPI is still increasing, but at a low monthly rate of 0.3 percent as shown in the previous CPI, and 0.2 percent in the CPI just published this month. In the prices of new homes, the story is different, and these began to decline sharply—a decline of 2.4 percent in the previous CPI, and a further decline of 1.9 percent now.


The direct and main cause of the halt in prices is the Bank of Israel’s continuous mortgage rate increases, which brought the interest rate from 0.1 percent last April, to 3.75 percent today. However, these measures have an additional effect—a rapid reduction in the scope of development of new homes, that if continued, could create a shortage of supply down the road, which will once again lead to an increase in prices.

The clearest numerical expression of the decline is the data on building starts — that is, the number of new homes whose construction has begun, which is published by the Central Bureau of Statistics (CBS) every quarter. Next month, CBS is expected to publish data on the fourth quarter of 2022, as well as a summary of the year, however, the downward trend can already be seen in the data for previous quarters.

After construction of approximately 19,000 apartments began in the fourth quarter of 2021, and construction of an additional 19,300 apartments began in the first quarter of 2022 — a very high level in Israeli terms—in the second quarter of 2022 there was a decline to 17,300 building starts, while in the third quarter, there was a further decline to about 14,700 new homes. Although this figure may not be considered particularly low historically, it is the lowest figure since the first quarter of 2021. And it is projected that in the fourth quarter of 22, the figure will be even lower.

Another aspect that is characteristic of the current period is a drop in the volume of land purchased for construction by developers – including in high-demand areas of central Israel. Just a few months ago, dozens of offers were submitted for every piece of land that went on the market in these areas, but today the situation has changed radically.

For example, a tender published by the Israel Lands Authority for the construction of nearly 600 apartments in Rosh HaAyin, located east of Petah Tikva, was barely approached by contractors at all, and it ended with one contractor winning a small complex for the construction of only 38 apartments, while the remainder of the land remained available.

A week earlier, another tender for the construction of 800 housing units in the ultra-Orthodox community of Rekhasim, near Haifa, was closed with almost no demand at all, with a single complex that was successfully marketed, while complexes for hundreds of apartments in the cities of Elad and Kiryat Malachi in the south remained completely undemanded.

The reasons for the lack of demand for land during this period can be understood. After all, the real estate industry is a huge credit consumer, and when interest rates rise rapidly, financing expenses increase accordingly. Another consequence of the increase in the interest rate is a sharp decline in the number of transactions for the purchase of an apartment, and this too does not encourage developers to start building, knowing that the sale of apartments during this period is expected to be particularly challenging.

The thing is that one day, sooner or later, the trend will reverse once more, and homebuyers will return to the market. And when this happens, they may find insufficient stock of apartments waiting for them, against the background of the current stagnation.  If this happens, then there is the likelihood of renewed price increases in the Israeli real estate market.

Are you interested in buying a home in Israel?  Whether you are taking the first step toward a permanent move, looking for a vacation apartment or retirement residence, or making a financial investment, Buyitinisrael will help you find the property that is right for you. Drop us a line, when you’re ready to talk! 

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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