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What has happened? House prices in Germany are predicted to fall more this year and next than previously expected as high interest rates undermine demand, according to a Reuters poll. Analysts expect the supply of affordable housing to deteriorate over the years ahead and ownership rates to decline.
Details. Average house prices in Germany are expected to fall 8.0% this year and 2.8% next year, steeper than the predicted 5.6% fall in 2023 and no growth in 2024 in an August survey.
Quote. "Higher interest rates forced about half of all potential buyers out of the housing market ... and therefore will lead to price reductions in the German housing market in this and the next few years," said Sebastian Schnejdar, senior real estate analyst at Bayern LB.
"Moreover, there was a significant rise in the overheads for heating, electricity and communal fees, which have also increased the costs of housing for homeowners." – he added.
The reasons. The bleak outlook comes despite the government recently announcing a €45 billion support package for the property sector and measures to stimulate housing construction, including tax incentives.
With overall economic activity expected to remain weak in the coming quarters, the recovery in the real estate sector may take some time.
The rentals. While 11 of 14 analysts who responded to the follow-up question said home affordability for first-time homebuyers would improve in the next year, 10 of 14 participants said the supply of affordable housing would worsen over the next two or three years.
Meanwhile, more people are moving into rental apartments, putting pressure on the market, and rents are rising faster than wages. In the capital Berlin, where just ten years ago there were many cheap apartments, the vacancy rate is less than 1%.
Average rental prices are projected to rise 4.0% or more until 2026, according to 12 real estate experts.
The context. Once booming property prices in Europe's largest economy have fallen more than 10% since their peak last year as the European Central Bank raised interest rates by 450 basis points in just 15 months, ending a decade-long era of minimum borrowing costs.
High interest rates and rising living costs through soaring inflation in recent years have not only forced many households to choose renting over owning a home, it has also led to the worst crisis in the German property sector in decades.
With some German property developers filing for insolvency, construction activity has dropped over a third from a year ago.
Source: Reuters
Photo by Mathias Konrath on Unsplash
