For years, real estate prices in Germany only went in one direction in many places: upwards. But that is now changing. According to an evaluation of 700 banks, the prices for residential property are falling – especially in places where there seemed to be no limits before.
According to Pfandbrief banks, prices for residential real estate in Germany have fallen slightly for the first time since 2010. In the third quarter, apartments and houses fell by 0.7 percent compared to the previous quarter, according to the new real estate price index of the Association of Pfandbrief Banks (vdp). The more than twelve-year upward trend in residential real estate has come to an end, said vdp general manager Jens Tolckmitt. While owner-occupied residential property has become slightly more expensive, the prices for apartment buildings have fallen by almost two percent.
The index of the association, in which the most important German real estate financiers are united, is based on transaction data from more than 700 banks. In the seven largest metropolises, residential real estate fell in step with the overall market by 0.7 percent. While prices in Berlin remained stable compared to the second quarter (minus 0.1 percent), they fell in the other major cities by between 0.6 percent (Cologne) and 1.5 percent (Munich).
Compared to the third quarter of 2021, however, residential property prices rose by a further 6.1 percent overall. In the second quarter, the vdp recorded an increase of 10.7 percent year-on-year. The association expects “moderate price declines” for the year as a whole. The market for residential real estate has always proven to be robust in crises. Price slumps are not to be expected.
According to the analysis, while the boom in prices is weakening, new contract rents are on the rise. They rose by 4.8 percent within a year and by 1.6 percent in the second quarter. A high demand for rental apartments is met with a lack of affordable properties, because new construction is shrinking and many refugees are coming to Germany from the Ukraine. “In addition, there is the demand group of those who are actually interested in buying, but for whom the dream of owning a home remains unfulfilled for the time being due to inflation and interest rate increases,” said Tolckmitt.
The rapidly rising interest rates for real estate loans and high inflation in Germany have been slowing down demand for real estate for some time because they put a strain on potential buyers’ budgets. There is also uncertainty about the economy and the Ukraine war. The vdp also noted falling prices for office and retail properties. Overall, the vdp real estate price index fell by 1.0 percent. Measured against the third quarter of 2021, it rose by 4.7 percent. There have been signs of a trend reversal in the real estate market for some time, but many analyzes are based on supply data. Official data from the Federal Statistical Office for the third quarter are still pending.
