Last year, real estate prices fell more sharply than they had in decades. Researchers speak of a unique phenomenon. However, prices had previously risen for years.
According to a study, prices for German residential properties fell more sharply in 2023 than they have in at least 60 years. Condominiums fell in price by 8.9 percent, single-family homes by 11.3 percent and apartment buildings by 20.1 percent, as the Kiel Institute for the World Economy (IfW) announced today.
Adjusted for inflation – i.e. measured in current purchasing power – the reduction in value is even more significant: prices even fell by another five percentage points. “The speed and extent of the current decline in real estate prices in Germany is historically unique,” it said. “Never since the appraisal committees began collecting purchase prices in the 1960s have real estate prices fallen so sharply so quickly.”
Prices had previously quadrupled
However, the most recent price decline was preceded by a price rally that, according to economic researchers, began around 2009. Since then, prices have risen three to four times, depending on the segment, before the sudden decline began in 2022. “In view of the exorbitant price increases over the last ten years and a new interest rate environment, a phase of price correction is certainly appropriate and, even to the extent that it has been so far, is not worrisome for the overall economy,” said IfW President Moritz Schularick.
In the fourth quarter of 2023, the rate of price decline has slowed. Compared to the previous quarter, prices for condominiums only fell slightly by 0.6 percent and those for single-family homes fell by 1.2 percent. Multi-family houses even rose in price by 4.7 percent, but the fluctuations here are relatively high due to the low number of transactions.
Prices are not falling in all cities
According to the information, the sales prices for condominiums in Germany’s top 7 metropolises (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, Stuttgart) show very different developments. In Cologne and Stuttgart, prices fell quite significantly by 3.6 percent each quarter compared to the previous quarter. However, there were also exceptions: in Berlin (-0.4 percent), Frankfurt (-0.2 percent) and Hamburg (+0.2 percent) prices hardly moved or even rose slightly.
“It is possible that real estate prices are beginning to bottom out,” said Schularick. However, this will only become apparent in the coming quarters. At least the behavior of the central banks suggests that interest rate cuts can be expected in the foreseeable future. “This means that real estate financing is likely to become cheaper again and thus stimulate demand,” said the economist.