Housing in Germany has fallen in price: the reasons for the market slowdown
A European real estate market review showed that home prices in Germany have started to fall for the first time since 2010. The cost of objects has risen in the country for over ten years. The last time a slight decline was recorded was in the previous quarter of 2010 when real estate fell by 0.5% compared to 2009.
During the pandemic, the cost of housing in Germany went up sharply. Over the year, it increased by 11-13%. However, in 2022 the dynamics slowed down, and by the 4th quarter, the decline was 3.6%. During the quarter, the price decreased by 5%, but if we analyze the market situation during the year, in 2022, the cost was 5.3% higher than in 2021.
Analysts note that over the past seven years, the growth of prices in the market amounted to 60%. The process of slowing dynamics began last summer when the German regulator revised interest rates to reduce inflation. At the beginning of 2023, there was another increase, and the deposit rate reached 2.5%. This rate is high for most German citizens, so potential buyers were forced to postpone buying a home.
Housing in Germany mortgage rates
According to Interhyp, in the last quarter of 2021, the average home loan rate’s monthly payments were 1166 euros, while during the same period in 2022, this amount increased to 1505 euros. The increase has led to a significant reduction in demand for mortgages. According to experts, if interest rates continue to rise, the market prices fall will continue. In this case, the purchase of housing will be less, which in turn will cause an increase in demand for rental real estate and, thus, its rising cost.
Most home sellers are interested in closing deals, which makes them go for a price reduction. On average, owners agree to discounts of 10-15%, and the number of offers on the market is increasing. However, buyers are in no hurry to purchase housing, they are not confident in the economic stability. Therefore, many of them decide to rent until the situation in the world is more favorable.
According to the forecast DIW, by the end of 2023, real estate prices could fall by about 10%. DZ Bank believes the cost will drop by at most 4-6 %. However, experts note that such fluctuations in the market are not critical. If the properties go down in price by 20%, they will equal 2020 levels. In this case, it is not a collapse but a sector correction. Despite all the turmoil, the German economy remains strong, which positively affects the development of the real estate market.