Contractors Slow Construction, Potentially Halting Housing Price Declines

Israeli contractors are reducing their construction starts in response to weak apartment sales, 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 units. This slowdown follows a period of high construction activity while buyer demand waned, leading to a surplus of about 84,000 new apartments on the market.

Despite the decrease in new construction starts, the number of building permits issued actually rose by 2% to around 83,300 units. This indicates that while planning processes continue to approve new projects, fewer developers are initiating actual construction. This gap suggests that developers are choosing to delay projects, waiting for market conditions to improve.

The existing inventory of unsold new apartments, while still high at roughly 84,000 units, has stabilized after increasing significantly over the past few years. This inventory is currently sufficient for about 26 months of sales at the current pace, with over half located in the Tel Aviv and Central districts.

Experts predict that if construction starts continue to decline while sales gradually recover, the overall supply of new apartments entering the market will shrink. This reduction in supply, combined with potential interest rate cuts and improved economic confidence, could lead to a resurgence in demand. Consequently, the current buyer advantage in negotiations may diminish, and price drops could cease or even reverse.

While the overall numbers still reflect a high level of construction and a substantial housing surplus, the shift in developer behavior is a significant indicator of future market trends. The current trend of declining construction starts, if sustained, is expected to reduce the excess supply that has been driving down prices.