Israeli Housing Market Shows Signs of Recovery Amidst Cautious Optimism

Israel's real estate market is exhibiting signs of recovery in recent months, with an increase in housing transactions, prompting questions about whether this marks a sustained exit from a prolonged slump or a temporary rebound. Zachi Artzi, head of the construction and real estate division at Bank Leumi's business unit, suggests that while selective buyers are returning, it's too early to declare a trend change. He notes that buyers are currently focusing on projects with strong developers, appealing locations, and prices they can afford, generally in the NIS 2.5 to 3 million range.

Despite a notable increase in new apartment sales in the second quarter of 2026, with 9,670 units sold and 3,672 in June alone (a 28% rise from the preceding months' average), a substantial inventory of 84,280 unsold new apartments remains. Artzi emphasizes that a long-term perspective is crucial, and the current sales pace needs to significantly close the gap with the accumulated inventory from the past two years.

Construction continues at a high pace, with approximately 82,600 building permits issued, 76,500 construction starts, and a 15.7% increase in completed units. Artzi explains this is a result of decisions made years ago and doesn't represent current demand-supply imbalances. He believes there's a temporary mismatch, as developers plan years ahead while buyers make decisions based on present conditions, including interest rates, personal finances, and security concerns.

Geographically, demand is stronger in areas with more accessible housing prices, particularly in the periphery (south and north) and the outer circles of the Tel Aviv metropolitan area (Gush Dan). Conversely, areas with large inventories and high developer competition see buyers in a stronger position. Artzi also commented on the Bank of Israel's recent interest rate cut, predicting it will ease financing costs for developers. However, he believes the rate cut alone won't be enough to revive demand significantly, as many potential buyers are waiting for further price drops and are influenced by other factors like security and economic uncertainty.