There is no question that home sellers' asking price is an important catalyst for the surge in home prices in recent years. The ease at which it is possible to run prices on Internet classified ads sites, even for a for-pay site such as Homeless, added a huge supply of homes to the market advertised by home sellers on the "success" method - if it works, fine; if it doesn’t work, they can stay in their old apartment - at clearly exorbitant prices, which quickly became the market prices where demand easily exceeded the supply.
For example, the annual average price for a four-room apartment advertised on Homeless rose in 2007-10 by rates that ranged between 33% in Ashdod and Ashkelon (from NIS 682,000 in 2007 to NIS 905,000 in 2010) and 79% in Bat Yam and Holon (from NIS 758,000 in 2007 to NIS 1.35 million in 2010).
But now, we can report a clear U-turn in 2011, even for the asking prices by home sellers. Since May, on the eve of the social protest and the corresponding measures taken by the government to cool the housing market (in May, it was mainly the Bank of Israel which announced a series of measures to raise the cost of highly leveraged mortgages), asking prices for four-room apartments published on Homeless have fallen in 12 of 13 areas reviewed.
The sharpest falls were in Haifa (12%), Jerusalem (9%), and Beersheva and the south (7%), where, as we have recently been informed, the housing inventory rose by 80% in 2011. It turns out that in the current market, sellers also have to compromise on their asking prices in an effort to attract buyers to the negotiating table.
However, for the year as a whole, since the U-turn only occurred in summer, many areas are still showed higher asking prices. Asking prices rose by 7% in Petah Tikva in 2011, they rose by 5.5% in Kiryat Ono, and in the southern coastal towns of Ashdod and Ashkelon, where they rose by 33% in 2007-10, they rose a further 19% in 2011 to cross the psychological level of NIS 1 million.
Asking prices fell in 2011 in six areas reviewed: Jerusalem by 13%; Haifa by 6.5%, Beersheva and the south by 5%; Netanya and Tel Aviv by 1.5%; and in Bat Yam and Holon by 1%.
The fall in asking prices continued in December 2011, but only by a little and not across the market as a whole or for all kinds of homes. Asking prices for all kinds of homes fell in only three areas: Rishon LeZion (by up to 2.3%), Ness Ziona and Rehovot (by up to 1.2%), and the Sharon (by up to 0.7%).
Up to 4% rental yield
It appears that buying apartments for investment is continuing to become less worthwhile, in view of the public's expectations of a further fall in prices (or at least a market freeze) and a gross current rental yield that is usually only just over 3%.
In the wake of Ministry of Finance directives - cancellation of the betterment tax exemption on second homes and a purchase tax hike on investors - as well as government plans to build rental apartments, the return from renting continues to be fairly low. Expectations of the closing of the difference between sales prices and rental prices (rental prices have risen in recent years by only half the rate of sales prices) have not materialized either, and rental prices have fallen in recent weeks and months.
High rental yields can still be obtained for three-room apartments. In the second ring of Tel Aviv suburbs (Rishon LeZion, Petah Tikva, Netanya, Bat Yam and Holon) it is possible to obtain a yield of 4%.
Methodology
In contrast to other online classified ad sites, Homeless charges for all ads it airs, which makes sellers quite prices in accordance with their real expectations and avoids freeloaders. The index gives two figures: the asking price of the apartment, and the average rental yield in each area.
The listed rent is the gross rent. For a month without a tenant, maintenance expenses, taxes (assuming that the rent is more than NIS 4,500 a month), and other costs deduct about 10% on average.
The index displays the yield per apartment - the price of the apartment divided by the rent. Even if there are distortions in listed prices for sale or rent, they should offset each other if they are both in the numerator and the denominator.
Published by Globes [online], Israel business news - www.globes-online.com - on January 9, 2012
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