The phase of falling prices on the real estate market could soon be over. This is according to data from the Federal Statistical Office. In the second quarter, i.e. the period from April to June, residential properties became cheaper by an average of 2.6 percent compared to the same period last year. However, prices rose by 1.3 percent compared to the previous quarter.
Houses in particular are in demand again in many places. Industry experts expect that customers will have to prepare for rising prices again. Last year, real estate prices fell to a level rarely seen in the history of the Federal Republic. According to the Federal Statistical Office, apartment prices fell by 8.5 percent in 2023.
“Increasing sales on the real estate market suggest that we are currently experiencing a stabilization in prices that is here to stay,” says Martin Güth, economist at Landesbank Baden-Württemberg (LBBW). Mortgage interest rates have recently fallen noticeably, so a “market recovery in the second half of the year” is to be expected.
High price reductions for houses with poor energy performance
According to statistics, the only price declines in the first quarter were for apartments in sparsely populated rural areas. On the other hand, single- and two-family houses became more expensive on average in all types of region compared to the previous quarter. In the seven largest cities of Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf, prices rose by 1.6 percent (apartments) and 2.3 percent (single- and two-family houses) compared to the previous quarter.
The price gap between energy-efficient buildings and properties with high energy consumption is large. While houses with old oil or gas heating and poor energy ratings have lost a lot of value, properties with the latest technology are sold for much more.
Construction interest rates have fallen noticeably
The main reason for the end of the real estate boom last year was rising interest rates. The European Central Bank has since reversed interest rates, which is also affecting construction interest rates. Recently, however, real estate has become somewhat more affordable again. Interest rates for ten-year real estate loans are currently around three to 3.5 percent. A year ago, it was around four percent.
Residential properties remain moderately attractive as an investment, says LBBW economist Güth. “But for those looking for a property for their own use, there is no reason to wait any longer. In our opinion, neither prices nor mortgage interest rates will fall significantly this year or next year.”