Credit rating and research company S&P Maalot has released an updated forecast for the Israeli residential real estate market. It says that the industry is at a historical low, with growing pressure on developers from the slowdown in sales, the high interest rate environment, and the rise in prices of construction inputs. According to S&P Maalot, the situation in the industry will start to improve only in the second half of 2026. Until then, home prices are expected to continue to fall, and insolvencies among highly leveraged developers are likely to increase.
S&P Maalot turns a spotlight onto the main trends in the industry, pointing out the sharp fall in the number of home purchases, which accelerated at the beginning of 2025, as interest rates remained high. In the first seven months of this year, the number of purchases of new homes fell by 28% in comparison with the corresponding period of 2024. “The decline stems from the high interest rate and the Bank of Israel’s restrictions on special offers,” the report states.
The report also remarks on the rate of building starts, and the stock of unsold new homes, which has reached a historical high, while the rate of sales continues to slow down. “In 2024, building starts grew to some 67,000 units, which compares with 63,000 in 2023, when the industry was hit by the outbreak of war. The stock of unsold new homes continued to break records, reaching about 82,000 units at the end of July.” The reason for the trend lies in the high number of building starts, despite some slowdown in construction caused by, among other things, a shortage of manpower.
The survey also says that, after the developers’ marketing efforts failed to revive demand, “there are initial signs that the developers have started to cut back on projects starts, as reflected in a 5.5% fall in building starts in the second quarter of 2025 in comparison with the previous quarter.”
Commenting on the fall of over 2% in the Home Price Index in June-August, S&P Maalot says that taking into account the benefits offered by the developers after the Bank of Israel Imposed restrictions on financing deals, and given the general rate of inflation, the real fall in home prices was even sharper than shown by the index.
Sales seen picking up next year
The report also comments on the fear of the erosion of developers’ profits because of the pressure on prices, financing costs, and the higher cost of building inputs. “The developers’ financing costs have continued to rise, among other things because of the reduction in advance payments by purchasers under the easy terms that the developers offered, and the growth in construction financing through loans linked to the prime rate,” it states.
Because of the continuing slowdown in sales, the developers are absorbing substantial costs arising from the benefits they are prepared to offer in a bid to keep sales moving, while the absence of Palestinian workers has led to a rise in construction costs, reflected in a 5% rise in the Building Inputs Index over the past year.
Looking ahead, S&P Maalot says that the erosion of profitability and the slowdown in cash flow will worsen as long as the interest rate remains high, sales continue to be slow, and prices of building inputs continue to rise. “In our view, the rate of sales will remain slow at least until the end of 2025, and given the large stock of unsold new homes, we estimate that home prices will fall at a single-digit rate.”
Despite the gloomy short-term forecast, S&P Maalot is actually positive about the long-term trend in the residential real estate market. In its base scenario, assuming an interest rate cut, sales will pick up in the second half of 2026, supporting a moderate rise in prices.
Published by Globes, Israel business news – en.globes.co.il – on October 21, 2025.
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