According to a report by the Kiel Institute for the World Economy, residential real estate prices in Germany saw a quarterly increase for the first time in two years during the second quarter of 2024. This growth spanned all segments of the market, fueled by expectations of lower interest rates and a shortage of new construction projects.
Prices for apartments and single-family homes have increased by 2.4% and 2% respectively in the period ending June 30 compared to the previous three months. The price increase for multi-family homes has reached 4.4% in the same period.
Despite these increases, the report from the Kiel Institute for the World Economy indicates that residential real estate prices in Germany are still lower than the same period last year, though the rate of decline has been slowing for three consecutive quarters.
"The turnaround in the real estate market has begun," said Jonas Zdrzalek, a researcher at the Kiel Institute. "The great uncertainty of the last few years and months is clearly fading, and the prospect of lower interest rates is stabilizing the market."
He added that the decline in new construction "is tightening the supply and thus supporting price dynamics."
The signs of recovery follow an unprecedented downturn in Germany last year, when residential property prices recorded their sharpest fall in 60 years as high interest rates and inflation scared off potential buyers.
Prices in Europe’s largest economy have adjusted much more sharply than in other parts of the region as most people rent their homes, meaning consumers have the option of staying as renters rather than taking out expensive mortgages.
The European Central Bank began cutting borrowing costs in June 2024, and investors expect further monetary easing after its next meeting in September after a pause last month.
Activity in the German property market remains subdued. Although the number of residential property transactions has slightly increased in the second quarter od 2024, it remained low at around 60% of the average between 2019 and 2021, according to the Kiel Institute.
Source: Bloomberg