Contractors Slow Construction, Potentially Halting Housing Price Declines

Israeli contractors are reducing their construction starts in response to weak sales and rising inventory, a move that could halt the ongoing decline in housing prices within two to three years. Over the past 12 months ending in June, construction starts fell by 7% to approximately 76,000 new apartments, with a notable decrease in the second quarter of 2026. Despite this slowdown, the number of new housing starts remains historically high, following record levels in 2025 and 2024.

The slowdown reflects developers' reactions to sluggish sales, higher interest rates, and softening prices. With apartments selling slowly, the inventory held by contractors has grown to about 84,000 units, sufficient for roughly 26 months of sales at the current pace. This large inventory has given buyers more leverage, leading to discounts and favorable payment terms.

While the number of building permits issued actually increased by 2% to around 83,300 units, fewer projects are moving to the actual construction phase. This indicates that developers are obtaining permits but are delaying the commencement of building, preferring to wait for market conditions to improve.

The inventory of unsold new apartments, which had been growing steadily, began to stabilize in early 2026. If construction starts continue to decline while sales pick up, the overall housing supply could shrink in the coming years. This reduction in supply, coupled with potential interest rate cuts and improved economic confidence, could lead to a resurgence in demand, potentially reversing the current price drops.

Experts note that the impact of reduced construction starts will not be immediate due to the multi-year process from project initiation to apartment delivery. However, a sustained decrease in new project starts is expected to diminish the flow of new homes entering the market, potentially leading to a tighter market and reduced bargaining power for buyers in the future.