Israel's Housing Market Sees Slowdown in New Construction

The Israeli real estate market is showing signs of adjustment as developers begin to reduce the pace of new construction in response to a prolonged period of high building activity and declining sales. Over the past year ending in June, the number of new housing starts fell by 7% to approximately 76,000 units. This slowdown is particularly evident in the second quarter of 2026, with about 17,800 new starts compared to 19,000 in the previous quarter. Despite this decrease, the current number of new starts remains historically high, following a record year in 2025 with around 80,000 starts and 70,000 in 2024.

The decision by developers to build less is a reaction to weak sales, rising interest rates, and falling prices. With slower sales, developers' inventory of unsold homes has grown, increasing financing costs. Consequently, some developers are delaying the commencement of new projects. This process takes time, meaning the current drop in new construction won't immediately create a shortage but could impact the supply of homes in two to three years.

Further evidence of this shift is seen in the number of building permits issued, which increased by 2% to about 83,300 units. This indicates that while planning systems are approving new projects, fewer are moving into the actual construction phase. The gap between permits and actual starts suggests developers are holding back on initiating new builds, even when approved.

As of the end of June, the inventory of new unsold homes stood at approximately 84,300 units, enough to cover about 26 months of sales at the current pace, with over half located in the Tel Aviv and Central regions. While this inventory has stabilized since early 2026 after a period of consistent growth, it remains at a very high level. If sales pick up and new construction continues to decline, the overall housing stock could begin to shrink.

While the current market still favors buyers due to the large inventory, offering opportunities for discounts and favorable payment terms, this situation may change. A sustained decrease in new construction, coupled with potential future interest rate cuts or improved economic confidence, could lead to a tighter market. If buyers return and find fewer new units available, the inventory could deplete faster, reducing negotiation power for purchasers and potentially leading to a reversal of price declines.