For years, prices for condominiums and homes have only gone in one direction – up. Now there are signs of a trend reversal. Economic experts are expecting sharp price slumps. However, they do not want to talk about the bursting of the property price bubble.
According to a study by the German Institute for Economic Research (DIW), the risk of severe price corrections on the real estate market is increasing. “We are not about to see a huge real estate price bubble bursting in Germany,” said DIW study author Konstantin Kholodilin on the study, which is available to the Reuters news agency. “But price slumps of up to ten percent for condominiums and homes are quite possible.”
Accordingly, the prices for homes and condominiums in the 97 cities surveyed have risen an average of eleven percent this year, while rents have increased by only four percent. The DIW considers it alarming that purchase prices and rents are diverging in this way. “Since real estate purchases are refinanced through rental income – or in the case of owner-occupancy through saved rental payments – real estate prices should develop in line with rents in the long term.”
If this is not the case, the suspicion arises that real estate is being used as a speculative object and that price bubbles could occur. Statistical tests would have confirmed such speculative price exaggerations. Nevertheless, the real estate market in Germany should remain comparatively stable, write the authors Konstantin Kholodilin and Malte Rieth. Financing conditions are deteriorating visibly as a result of rising interest rates. However, the proportion of loans with a long-term fixed interest rate is still relatively high and there is no sign of widespread private household debt.
In addition, the high real estate prices in many places were due to high demand combined with low supply. The population is growing again in many German cities, while too few new apartments are being built due to less favorable financing conditions, enormously increased construction costs and, in many places, staff shortages. In big cities like Berlin, Dusseldorf and Cologne, the number of completed apartments actually fell last year.
The DIW experts therefore see the federal government on the train. You must focus on providing affordable housing in the metropolitan areas. “Politicians should quickly give new impetus to new construction activity with accelerated procedures and higher public construction investments,” said Rieth.
