Israel's Housing Market Sees Sharp Decline in Free Market Sales

July saw a significant downturn in Israel's free housing market, with a 4% year-over-year drop in total transactions to 7,692 units. When excluding government-subsidized sales, the number falls to 6,582, a 9% decrease from last year and a 13% drop from June, marking one of the lowest figures since the early 2000s. The free market's performance is particularly weak compared to population growth, with only an 18% increase in transactions since July 2002, while the number of households grew by approximately 60%.

Sales of existing homes (second-hand market) declined by 11% year-over-year to 4,724 transactions. New home sales by developers also suffered, with only 1,858 units sold in the free market, a 5% decrease from last year and a substantial 22% drop from June. In contrast, government-subsidized programs saw a surge, with 1,110 units purchased, a 46% increase, marking the third consecutive month above a thousand subsidized deals.

The southern city of Be'er Sheva is experiencing a particularly severe slump, with 311 housing units sold in July, an 18% decrease. Year-to-date sales in the region are down 25%, the sharpest decline in Israel. The city itself has seen a 74% drop in new home sales over the past two years, with approximately 1,100 new apartments currently unsold, a 15% increase year-over-year. At the current sales pace, it would take 38 months to sell this inventory, compared to 12 months two years ago.

Developers are increasingly relying on financing incentives, such as deferred payments and subsidized interest rates, to avoid officially lowering prices. In July, 27% of free market sales by developers included financing benefits, a rise from previous months. The Ministry of Finance warns that official data may underestimate these benefits, as some deals offering indexation waivers are not classified as financing promotions. The effectiveness of these incentives is being tested as a Bank of Israel regulation limiting such schemes is set to expire soon.

Investor activity also decreased, with 1,146 units purchased in July, down 4% year-over-year. However, the Netanyahu region saw a significant 69% jump in investor purchases. Overall, investors continue to sell more properties than they buy, reducing their inventory. Home upgraders experienced the steepest decline in purchases, down 18% year-over-year, while first-time buyers, largely supported by subsidized programs, were the only group to show growth.