Prices for apartments and houses have recently fallen more sharply than they have in over 20 years. The trend exists in metropolises as well as in the countryside. And experts also expect a price decline for 2024.
The decline in residential property prices has accelerated. Between July and September, prices fell by 10.2 percent compared to the same period last year, as the Federal Statistical Office announced. It was the largest decline since the time series began in 2000. A decline of 9.6 percent was recorded in the second quarter. At the beginning of the year it was minus 6.8 percent.
“Speculative bubble has burst”
Compared to the second quarter of 2023, residential real estate prices fell by 1.4 percent. Since their peak in the second quarter of 2022, prices have now declined compared to the previous quarter. Prices fell on average in both cities and rural regions. In the metropolises of Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf, single and two-family houses fell in price by 12.7 percent, and buyers had to pay an average of 9.1 percent less for apartments than a year before.
“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.”
Price decline is likely to continue
According to DZ Bank, prices for residential real estate in Germany are likely to continue to fall in 2024. According to a current study by the bank, the price correction is expected to end next year. However, annual average declines of 0.5 percent to 2.5 percent are still expected. Real estate in poor locations or with high energy consumption is likely to develop weaker, wrote DZ Bank expert Thorsten Lange.
Politics also plays a role in the price decline, the study says: “Continuing uncertainty regarding the funding of renovation measures or new construction can put a strain on real estate demand and slow down the market recovery.”
The construction target will also be missed next year
A sharper decline in prices is therefore prevented by the current construction crisis. The federal government’s target of 400,000 new apartments every year will probably continue to be clearly missed in the future. Due to the steep increase in construction and financing costs, annual completion could even fall to 200,000 apartments by 2025, according to DZ Bank’s forecast.
The German Institute for Economic Research (DIW) is somewhat more optimistic in an as yet unpublished report commissioned by the Federal Ministry of Construction. Accordingly, the number of newly built apartments this year is 269,000. The institute predicts that 265,000 new apartments will be completed next year. Construction Minister Klara Geywitz (SPD) admitted to the “Rheinische Post” that the traffic light government was clearly missing its goal in both years: “Building 100,000 more apartments is not possible.”
Building interest rates have recently fallen again
The main reason for the fall in prices on the real estate market is the sharp rise in interest rates, which has made loans significantly more expensive. Many people can no longer afford or do not want to afford their own four walls. Banks’ new business with real estate loans has collapsed.
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. If interest rates fall faster than expected, this could cause real estate prices to rise again, according to DZ Bank. Building interest rates are currently back below the four percent mark, after rising to almost 4.5 percent in October.