Stocks plunged by 30%, sales rose slightly: Is there still room for real estate prices to fall?

It has been a difficult year for the real estate industry. Development companies are required to use creative and aggressive promotions to scrape together buyers, and yet quarter after quarter the number of apartments sold is decreasing, and on the other hand, the inventory of unsold apartments has already accumulated to 84,000, according to the Central Bureau of Statistics (CBS).

All these have also caused the capital market to react - and the construction index, which mainly includes the large development companies in Tel Aviv, has fallen by 31% since the peak last March, and in the summary of the last year recorded a decrease of 10%. Now the question arises, have real estate prices already met the bottom, and from here it will start to rise - or do prices have more room to fall?

Although most real estate companies have not yet published their financial reports for the second half of the year, the Aura company, one of the largest in the local market, revealed its sales data. Aura sold 291 apartments in the first half of the year - a decrease of about 6% compared to the figure recorded in the corresponding period last year, which was also a relatively weak year in the market. Aura is of course not alone, but only the pioneer to report this. In previous quarters, almost all construction companies showed a significant decrease in the volume of apartments they sold.

This picture is of course also reflected in the industry's stocks. In the last year, the TA-35 index rose by 40%, but as mentioned, TA-Construction fell by 10%, a decrease that was concentrated mainly in the last five months. Even in the long term, construction stocks showed inferior returns compared to the leading indices, when in the last three years TA-35 rose by over 130%, while construction stocks rose by only 38%.

"Financing promotions have exhausted themselves"

"The entire residential market is in a challenging situation, with a very significant decrease in the pace of sales in the last year," explains Raz Domb, real estate analyst at Leader Capital Markets. "This is happening because despite the cuts, the interest rate is still higher than what we were used to about a decade ago. In addition, at the beginning of the decade, the absolute price of an apartment became significantly more expensive. In 2024, loans and contractor promotions began, elements that are supposed to help buyers, but in the last year these marketing efforts also exhausted themselves, and the Supervisor of Banks also tried to limit them a bit, so we reached a situation of a quite significant decrease in sales that hurt everyone."

First signs of recovery in the industry?

But despite the sentiment, the CBS data published recently show some recovery. Apartment prices in May-June rose by 0.1% compared to the two months that preceded them. However, prices are still about 1.5% lower than their levels in the corresponding period last year. The price of new apartments (excluding the 'Price for the Tenant' program) rose in the last CBS survey by 0.9% in the last two months.

At the same time, during the month of June, 3,672 new apartments were sold, which is an increase of about 28% compared to the months that preceded them (January-April). However, as mentioned, about 84,000 unsold apartments still remain in the markets, with the CBS noting that after an increase in the monthly pace of 1.4% from mid-2022 to the end of 2025, starting from the beginning of 2026 "it seems that the trend is stabilizing."

However, Ziv Ein-Eli, real estate analyst at the IBI investment house, suggests not to get excited about the CBS data, which according to him "present a partial picture and do not reflect the reality on the ground." And indeed, the stocks in the field not only did not rise in the last three months, but showed a sharp decrease of about 22%, while the TA-35 index fell in the same period by 5%. And as mentioned, since the peak last March, the index has plummeted by 31% in total.

"Even lowering the interest rate might not help"

According to Ein-Eli, to get a clear picture, investors will have to wait and watch the effectiveness of the moves and discounts announced by the companies. In this context, he points to the move by the real estate company Prashkovsky, which offered during the last month to buyers to participate in a tender for the purchase of apartments at a starting price 10% lower than the prices in its projects.

Aura offers today to 'Hever' club members apartments at a discount of 10% or more, Hagag offers buyers to pay an especially low equity in the contract plus guaranteed rent until receiving the key, and only recently the Avgad company raffled off an apartment as a gift. "These promotions are supposed to give an indication of whether and at what price levels it is possible to bring buyers back to the market in the current environment."

"It is still too early to determine that there is a trend change," joins Domb from Leader to the observation on the CBS data. However, he points to two events that could support the trend change - the elections and the interest rate cut. "I assume that the elections are also something that buyers are waiting for, and after them there may be more clarity or a decrease in uncertainty. To this, one can add the interest rate, another one or two interest rate cuts, which will bring us to levels of 2%-3%, these are quite healthy levels for the economy."

Similar things are voiced by Rami Dror, CEO of Value Advanced Investments. According to him, "the recovery in real estate stocks depends on a significant improvement in the pace of apartment sales, the stabilization of housing prices, and relief in the interest rate environment and financing costs. Although in the last quarter a certain recovery in sales is evident, developers are still dealing with excess supply and expensive financing needs, and therefore it is difficult to estimate that the recovery in stocks will be fast."

But not everyone agrees regarding the effect of the expected interest rate cut on the field. "I don't think the interest rate cut will affect dramatically," estimates Ein-Eli from IBI. "We are not talking here about a clear and permanent interest rate cut path, with serious significance for buyers. I think what is more significant and will bring buyers to the market is price drops. The interest rate cut might perhaps help a little, but it is not supposed to affect in a substantial way, the big story is the ability of the companies to lower the prices on one hand - and the desire of the buyers to buy in these price environments on the other hand."

"Attractive pricing, but patience is needed"

Despite the disagreements regarding the factor that may bring about a trend change, the analysts share the assessment that the field is undervalued, at least in terms of the value of the companies traded on the stock exchange. "Even under strict assumptions of price drops, a slowdown in the marketing pace, project delays, and deal cancellations, I still see upside in the sector after the recent drops," says Ein-Eli from IBI. "But in the end, it's a matter of sentiment, and for the stocks to rise there needs to be a change in it, and therefore I think patience is needed on this issue."

Domb from Leader agrees: "I think that some of the stocks already reflect an attractive pricing today for increasing exposure to them. I don't know if it will happen in the next quarter or in three, but in the end we will see the trend change."

In this context, Domb's recommendation is to "stick to the larger and stronger companies." This is because usually "they are also stronger financially, and they have stronger ties with the financing systems, and therefore they are preferable, especially in a period of uncertainty. Also, being exposed to the index is not a bad choice, in the end a significant percentage of it is composed of the large companies, which when there is a sentiment change will benefit."