A ticking bomb in the housing market: Banks have created a wave of cancellations and the state is silent

1. When looking at the main headlines this week in the real estate sections, one gets a rather bleak picture: the Ministry of Finance warns of a wave of deal cancellations on the way and predicts that we are heading towards a difficult period that will continue into 2028.

The way the Ministry of Finance presents the data is enough to make an average person back out of a deal. He reads and hears that the market is on its way to collapse, that some commentators (who recommend you invest in the capital market) are calling not to buy an apartment, and that whoever does buy one will likely have to leave a 10% compensation with the contractor because they simply won't be able to keep up with the payments.

There is also the side of the contractors — those who think that apartment prices will rise in the medium term, and that whoever does not take advantage of the aggressive financing promotions is making a mistake. That tomorrow you will no longer be able to buy an apartment at a reasonable price.

But the truth, what can you do, is often found in the middle. This gray area is called a market that is in a slight slowdown. On one hand, the Ministry of Finance data published this week are good for contractors: they show that the market is starting to recover — the number of deals is increasing, the number of financing benefits is decreasing. These are conditions that, apparently, should lead to renewed growth. And then comes the separate chapter on the wave of deal cancellations, which points to a dramatic jump (41%) in the number of cancellations.

This is an increase of a few hundred cases within a few months. This does not mean that this figure is not important or that it should be ignored — but we have only one question: what is the connection between 2021, when the real estate market was at its peak, with zero interest rates and low mortgages, and 2024-2025, when Israel went through a difficult war, with a high interest rate that does not allow many couples to buy apartments? Is the risk the same? Does the Ministry of Finance not think that a "jump" of hundreds of apartments between the peak year of real estate in the last two decades and the trough year, when the risk was higher from the start, is a legitimate figure?

On the other hand, you cannot argue with numbers. True, the number of cancellations is on the rise and may even increase in 2027 and 2028, but is this a surprise given the market conditions? Food for thought.

1. It is difficult to clear the banks of the wave of cancellations that the Ministry of Finance is talking about. Banks are supposed to perform underwriting for their clients; if clients from Beersheba and Tiberias cannot complete a deal, if in 2023 the percentage of cancellations in Tiberias reaches 7% of all deals — then the Bank of Israel was not tough enough and did not demand enough from the banks.

I am not clearing the Banking Supervision either. They did a good job when they decided to limit contractor promotions to neutralize the risk, but how could it be that for a period of two years contractors distributed loans to anyone who asked and no one stopped it? One can blame the contractors and claim greed, but did the Banking Supervision expect to roll the responsibility onto the contractors, for them to remove clients from sales offices? Did they expect them to perform the underwriting for the client? Of course not.

This perhaps explains why the few real estate companies that do not allow clients to sign 10/90 deals and prefer to give up deals in such a difficult period are doing them a favor. The last thing contractors want is a 10% compensation. Every deal cancellation has consequences — banks do not like cancellations and contractors know that their financing costs will be heavier.

When a client paid a 20% down payment in a contract and they have to return 10%-13% of the money to him according to the contract — they lose twice: the first time, because the apartment stood empty and could have been sold to another client. The second time, because instead of injecting money into the company, they pay 8% interest on their financing costs — hundreds of thousands of shekels a month, and perhaps even millions. The current situation is bad for everyone. It is time to stop the dangerous 10/90 promotions completely — and the sooner the better.

1. It is time to tell the truth: the 'Apartment at a Discount' program is a program for reservists and not for the public lacking housing. Recently we revealed that ministers in the government are planning a move that will allow reservists to receive apartments without VAT, a matter that is still under legal and economic review.

Meanwhile, the government chose to allocate 75% of the apartments at a discount to the public serving in the IDF. The decision to give combat soldiers priority in purchasing apartments, and priority in purchasing land from the Israel Land Authority (ILA) is correct and just — but perhaps it was possible to change the mix.

Combat soldiers deserve a clear priority to win, and perhaps they should have received a clearer priority over a reservist who is not a combat soldier. In addition, it was possible to open an additional program each year, intended for the public lacking housing that is not reservist. Changing the mix, and giving priority to reservists at the expense of those lacking housing, does not solve the main problem for which we gathered: lowering housing prices and caring for the public that is unable to buy an apartment, and the government sends it to look for one in the free market.

1. The housing price index was published today, and it points to an increase of 0.9% in new apartment prices. It is interesting what will be said to the speculators, who claimed that apartment prices would fall by 20% this year. The explanation for the increases is simple: apartment prices fell sharply in the previous period, so a correction is taking place. The interest rate also released more deals to the market, and alongside the dramatic headlines about deal cancellations, a stabilization is being recorded in the market. It is interesting to see if the new data will bring more buyers back to the market, or if most will prefer to continue and absorb the rise in rental prices.