Rising prices push home buyers away from Tel Aviv

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 Rising prices push home buyers away from Tel Aviv

In 2022, Israeli homebuyers were increasingly looking for apartments in peripheral regions, mainly in the south, where prices are relatively low. Consequently, the share of transactions in demand zones in Tel Aviv and central Israel has decreased compared to 2021, according to data from the Central Bureau of Statistics for the last quarter of 2022.

The data also shows that more buyers preferred to buy smaller apartments compared to previous years, presumably due to rising prices for housing.

The real estate market is in a state of uncertainty. On the one hand, apartment prices are at an all-time high. The average price of an apartment purchased in the last quarter of 2022 reached an average of 1.96 million shekels, while the average price of a four-room apartment in Israel reached 1. NIS 97 million. On the other hand, public opinion at the moment is that prices have peaked and a steep decline could now occur, which is reflected in very few transactions. A contradiction arises: demand falls, but prices continue to rise.

A look at average apartment prices in various Israeli cities reveals that, despite factors suggesting a major slowdown in the sector, such as more expensive mortgages, prices for apartments purchased in the last quarter of 2022 were higher than in previous quarters.

This can be explained by two reasons: the first – the crisis manifests itself at this stage mainly in a decrease in the volume of transactions. This is only one component of the crisis. The second component — this is a price drop — and this is not happening yet. Although in the past two months there has been a significant decrease of 4.3% in the price index for new apartments purchased on the free market (an unofficial index based on data from the Central Bureau of Statistics, which, unlike the official index, does not include apartments purchased at subsidized prices). But the overall figure continues to rise – albeit by tenths of a percent. This indicates that prices in the secondary housing market, which accounts for about three-quarters of the entire market, continue to rise.

The second reason — Buyer population. Bank of Israel surveys of this group of buyers show that the increase in interest rates in recent months has mainly pushed away buyers of apartments in the NIS 1-3 million price range, but to a lesser extent buyers of apartments at higher prices, from the market. Buyers of expensive apartments are more affluent and can afford mortgage payments more easily even when interest rates rise. Further support for this explanation can be found in the data showing that apartment prices recently purchased are higher than in the past. Reason This, apparently, is not in the rise in prices, but in the weight of more expensive apartments – which has increased.

The data show that the annual increase in prices for apartments is 17.1%. The increase in the interest rate, as already mentioned, scared away some buyers who want to buy relatively cheap apartments. But a closer examination of the data shows that there have also been changes in the geographical composition of purchases: significant increase in purchases on the periphery — south and north — and a significant decrease in purchases in high-demand areas.

In 2021, about 18% of apartment purchases were made in the Tel Aviv area, and in 2022 this number fell to about 14%. About 26% of apartments purchased in 2021 were in the Central District, while last year this figure decreased by about to 24%. In the Haifa district, the share of purchases fell from 16.6% to 16%. On the other hand, home purchases in the North increased from 10.2% to 11.6%, and the most significant increase was recorded in the South – from 19% to almost 23%. Shopping in the Jerusalem area rose from 8.5% to 9%, helped by deals in Beit Shemesh. A recent survey by the Ministry of Finance found that Beersheba serves as a haven for many young couples due to relatively low prices.

Another question studied was to what extent apartment price changes forced buyers to compromise on the size of apartments. The differences between 2022 and 2021 were very small. But a comparison between 2017 and 2022 shows that the share of small apartments in purchases has increased from about 34% to about 36%, the weight of large apartments decreased slightly, but remained at about 28%, and the weight of 4-room apartments decreased to 36% in 2022 compared to 38% in 2017.
< br />As for 4-room apartments, the sale of which was registered in the last quarter of 2022. In Tel Aviv, the most expensive city, the average price of a four-room apartment reached NIS 4.9 million, compared to Beersheba, the cheapest city, where the average price was NIS 1.2 million.

in recent years, apartment prices in Tel Aviv have not only broken all possible records — the gap between them and apartment prices elsewhere has widened significantly. For example, the average price of a four-room apartment in Tel Aviv was four times higher than in Beer Sheva at the end of 2022, while in 2017 it was only three times higher. times. The gap between prices for four-room apartments in Haifa and Tel Aviv widened during this period from 2.4 times to 2.7, while the gap between Tel Aviv and Jerusalem widened more moderately, from 1.6 times to 1.7.

This largely explains the decline in the Tel Aviv market. It turns out that even in relation to its neighbors – Ramat Gan, Rishon LeZion, Petah Tikva and Holon – Tel Aviv has increased the price the last five years.

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