According to a recent study by the German Institute for Economic Research (DIW), the risk of serious price corrections on the real estate market in Germany is increasing. Apartment and house prices could fall by an average of 10 percent.

As the author of the DIW study said, a price drop of up to ten percent is entirely possible.

According to the study, house and apartment prices in the 97 surveyed cities rose by an average of 11 percent this year, while rents increased by only four percent.

DIW considers it alarming that purchase prices and rents differ so much. “Since the purchase of real estate is refinanced through rental income – or in the case of owner-occupied housing through saved rent – real estate prices should develop in line with rents in the long term.”

According to the researchers, statistical tests confirmed speculative excesses in prices.

Will the real estate market in Germany remain stable?

Despite this, the real estate market in Germany should remain relatively stable. Real estate financing conditions are visibly worsening due to rising interest rates. However, the share of loans with long-term fixed interest rates is still relatively high and there are no signs of widespread household indebtedness.

In addition, high real estate prices in many places were the result of strong demand combined with low supply. The population in many German cities is growing again, and too few new apartments are being built due to less favorable financing conditions, enormously increased construction costs, and in some places a shortage of workers.

In large cities such as Berlin, Düsseldorf and Cologne, the number of completed apartments actually fell last year.

As many as 28 annual rents for one apartment

DIW experts believe that politicians must focus on providing affordable housing in urban areas.

“Politicians should quickly give new impetus to new construction through accelerated procedures and greater public construction investment,” say the researchers.

DIW calculations are based on data from the real estate association IVD for the years from 1996 to 2022.

Accordingly, the prices of family houses have approximately doubled over the past decade. In the same period, condominiums became about 150 percent more expensive, and building land about 130 percent more expensive.

Rents also increased by an average of 56 percent, but in many cases significantly less than the prices of residential real estate.

Real estate in large cities recently cost as much as 28 annual rents – the highest since the mid-1990s.

Source: fenix-magazin.de