According to figures published by the Arlov Real Estate Institute at Tel Aviv University’s Koller School of Management in collaboration with Calcalist, the third quarter of 2023 saw a positive change in the situation for apartment buyers. Although not a dramatic change, this change was significant, making the prospect of buying an apartment more accessible for some and marking a break from a long-standing trend of increasing unattainability.
The Alrov Index considers three main variables to assess whether you can buy an apartment based on your monthly repayments and the capital required for the purchase. In the third quarter, these variables shifted in favor of buyers. The index reported a 2.9% decline in the price of a four-room apartment across the 12 cities surveyed, from NIS 2.73 million to NIS 2.65 million. At the same time, household income increased slightly by 0.5%, and the average mortgage interest rate fell by 0.16% to about 5.2%.
The study was conducted by Professor Dany Ben Shahar, director of the Arlov Real Estate Institute and faculty member at Tel Aviv University’s Koller School of Management, and Dr. Dana Nayar, a researcher at the institute. Professor Ben Shahar said: “After nine consecutive quarters of increases, this was the first quarter in which the average index decreased.” “This is primarily driven by three factors: a gradual decline in average mortgage rates, quarterly declines in apartment prices, and modest increases in incomes.”
Ben Shahar pointed out that according to the Arlov index, there has been no decline in apartment prices for about three years. He pointed out that “there has been no decline in the index since the third quarter of 2020, but there was a significant decline of approximately 2.9% in the third quarter of this year.”
Regarding interest rates, Ben Shahar said, “The current gradual decline in mortgage rates reflects the expectation that high interest rates will not continue in the long term. It belongs to.” Putting the war aside, there is a sense that inflation is currently under control in the world and in Israel. ”
The rise in interest rates that began in April 2022 meant that one of the main considerations for couples when buying a flat was the monthly repayment amount. Many couples are stretched to the limit of their finances, so when interest rates change, repayments can have a big impact on their ability to buy. The monthly payment index looks at what you would pay for a typical four-room apartment. The financing interest rate is 70% of the apartment price (remaining equity is 30% of the apartment price). According to the data, repayments in the third quarter of 2023 decreased by NIS 512 per month (from NIS 11,665 to 11,153) compared to the previous quarter, with a rate of approximately 4.4%. The repayment amount for the same quarter last year was N8,918.
In 10 of the 12 cities surveyed in the index, monthly repayments required decreased in the third quarter of 2023 compared to the previous quarter. Tel Aviv had the largest decline, with a rate of 7.0%. Rishon Lezion 6.3%, Jerusalem 5.5%, Beersheba 5.4%, Rehovot 5.3%, Petah Tikvah 5.1%, Haifa 2.1%, Hadera 1.8%, Bat Yam and Ramat Gan 0.9%. Compared to the previous quarter, the monthly repayments required in the third quarter of 2023 increased by 8.3% and 1% in Bnei Brak and Ashdod, respectively. In nominal terms, the required monthly repayments at municipal level for the quarter were NIS 4,982 in Beersheba, NIS 6,173 in Haifa, NIS 9,039 in Ashdod, NIS 9,597 in Hadera, NIS 9,606 in Petah Tikva and NIS 9,606 in Bat Yam. NIS 9,661, NIS 10,029 in Rehovot, NIS 10,035 in Rishon Lezion, NIS 11,391 in Bnei Brak, NIS 11,484 in Jerusalem, NIS 12,447 in Ramat Gan, NIS 18,159 in Tel Aviv.
Compared to the corresponding quarter last year, the average monthly repayment amount in the third quarter of 2023 increased from Dh8,918 (Q3 2022) to Dh11,153 (Q3 2023), which is an annual That’s an increase of about 25%. At the municipal level, increases were observed in all cities surveyed compared to the same period last year. Last year, the fastest growth rate was recorded in Hadera at 35.9%, and the lowest in Bat Yam at 16.0%.
The situation of apartment buyers is also examined by a stock index that tests whether a typical four-room apartment can be purchased so that the current monthly mortgage payment does not exceed 30% of the household’s average net income. Masu.
The data shows that the upward trend in the index that started in the second quarter of 2021 stopped in the third quarter of 2023. Compared to the previous quarter, the stock index in the third quarter of 2023 decreased by approximately ca. NIS 101,000 (from NIS 1.692 million to NIS 1.591 million), which reflects a decrease of approximately 6.0%. However, in the annual calculation, the stock index increased by about N232,000 (from about N1,359,000 to N1,591,591), reflecting an increase of about 17.1%.
Breaking it down by city, we find that 10 of the 12 cities surveyed experienced a decline in capital. In Beersheba, a decrease of 36.3%, or about 70,000 shekels nominally; in Rishon Lezion, a decrease of 142,000 shekels; in Petah Tikva, a decrease of 107,000 shekels; in Tel Aviv, a decrease of 275,000 shekels; in Jerusalem, a decrease of 138,000 shekels; in Haifa, a decrease of 3 This was a decrease of 11,000 shekels.
As mentioned above, this index reflects the situation of homebuyers on the eve of the war, but it also reflects the dramatic changes that occurred in Israeli society due to the events of October 7th and the changes that have characterized the real estate industry ever since. Due to stagnation, the index is rising. There is a possibility that even more serious damage will occur in the future. The first evidence pointing to the future can already be seen in the reports of listed real estate companies. Some of them testify that only a few apartments have been sold in the nearly two months since the war broke out. Macro data, especially pre-crisis apartment transaction volumes, show that the starting point leading up to the war was problematic and that the industry’s stagnation began even earlier. The number of transactions in the third quarter decreased by 7.3% compared to the previous quarter and by 43.5% compared to the same period last year.
Ben Shahar said concerns about the industry’s stability stem from broader issues, not just a lack of deals. “We are concerned that the situation will worsen in the fourth quarter of 2023,” he said. “The current paralysis in the market is not just at the transaction level. A big concern is the sharp decline in construction starts. There is a significant labor shortage in the construction industry, which is creating excess demand on the industry. “There is a possibility that this could lead to price increases again in the future. To begin with, we entered this period with demand suppressed due to rising interest rates, and in the future there is a risk of war. This could lead to a decrease in supply.”