Sharpest decline since 2000 – real estate prices are falling at a record pace
Significant price declines have been recorded in both cities and rural regions
Source: Axel Heimken/dpa
Real estate prices in Germany fell more sharply in the third quarter of 2023 than ever since records began. The trend is likely to continue in the new year. Demand had declined due to high inflation and increased financing costs.
Dhe prices for residential property in Germany fell again at a record pace in the third quarter. From July to September they fell by an average of 10.2 percent compared to the same period last year, as the Federal Statistical Office announced on Friday. This is the largest decline since the time series began in 2000.
The largest declines to date had occurred in the first (-6.8 percent) and second quarters of 2023 (-9.6 percent). The main reason for this is likely to be lower demand as a result of increased financing costs and high inflation. From the second to the third quarter alone, prices fell by 1.4 percent: since the peak in spring 2022, they have been steadily declining.
Significant price declines were recorded in both cities and rural regions in the summer. In the top 7 metropolises (Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf) the prices for single and two-family houses fell by 12.7 percent compared to the same quarter of the previous year. 9.1 percent less had to be paid for condominiums. In the sparsely populated rural districts, single- and two-family houses were 12.4 percent cheaper, and apartments were 5.6 percent cheaper.
“Until 2022, there was a speculative price bubble in Germany, one of the largest in the last 50 years,” said Konstantin Kholodilin from the Macroeconomics Department of the German Institute for Economic Research (DIW). “Prices have been falling since then. The bubble has burst.” According to a study by DZ Bank, the downward trend is likely to continue in 2024 despite the expected turnaround in interest rates. “We expect an annual average decline of half a percent to two and a half percent,” said analyst Thorsten Lange.
Due to falling inflation, many economists expect that the European Central Bank (ECB) will initiate a monetary policy change next year and lower its interest rates. This means that mortgage loans are likely to become cheaper again. The key interest rate is currently 4.5 percent.