The German real estate market has been turbulent recently. Last year saw the biggest price collapse since the turn of the millennium. The situation should stabilize again in 2024. However, there are still big regional differences.
The situation on the German real estate market is inconsistent depending on the region, but on the whole it is increasingly stabilizing. The figures for real estate prices in the first quarter of 2024 exclude this. It remains to be seen whether this will be the oft-proclaimed turnaround. What is clear, however, is that buyers are slowly returning to the market.
This is what the real estate service provider reported McMaklerthat demand for residential real estate increased by 4.8 in the first three months of the year. In cities like Berlin and Hamburg, interest was particularly high. A higher volume of construction financing was also granted at the beginning of the year than in the previous year.
Where do the prices go?
According to McMakler, prices on average remained flat compared to the previous quarter, while they rose by more than one percent in cities such as Frankfurt am Main and Munich. According to the loan broker Interhyp However, prices in Germany rose by around one percent from January to April compared to the previous quarter.
For comparison: Last year, property prices in Germany fell more sharply than at any time since the turn of the millennium. Prices fell by 8.4 percent in 2023 compared to the previous year. This was primarily due to the sharp increase in financing costs as a result of higher building interest rates.
The AVIV Housing Market Report is now talking about a “turnaround” in Germany, as both lending and real estate prices are increasing again. The price per square meter rose by an average of 1.6 percent to 2,998 euros – even if real estate prices are still below the prices at the beginning of 2023.
prices for Apartment buildings decreased by 10.5 percent
Calculated by the Kiel Institute for the World Economy (IfW) and partners German Real Estate Index (Greix) is based on purchase price collections from the appraisal committees, which contain notarized sales prices. And according to this index, the prices for condominiums in Germany for selected cities have not increased, but have fallen: although only slightly by 0.7 percent compared to the previous quarter. For the first time in around two years, real estate is hardly losing any additional value in terms of current purchasing power, according to the IfW.
But there were significant reductions in one segment: prices for apartment buildings fell very significantly by 10.5 percent in the last quarter. However, there is high volatility in this segment due to the low number of transactions, the researchers explained. Therefore the informative value is only limited.
Where are prices rising and where are they falling?
According to the IfW, the price situation is also calming down in the seven largest cities in Germany. In Cologne and Frankfurt, prices rose by 2.4 and 2.2 percent respectively compared to the previous quarter. In Berlin and Stuttgart, however, it fell by 1.9 and 1.4 percent.
Outside the seven largest cities, price developments are “extremely inconsistent.” However, it is noticeable that all eastern cities that are part of the index recorded a minus, according to the IfW. It was cheaper both in Leipzig with a minus of 2.7 percent and in Dresden with a minus of 1.9 percent. In contrast, some western cities recorded a decent increase, such as Wiesbaden with six percent or Münster with more than four percent.
“Supply and demand are not yet quite aligned on the real estate market. The ‘big buying opportunity’ that is now being proclaimed in some places also seems to be strongly interest-driven. In some regions, things are still going down significantly, and real estate was particularly important when measured in terms of current purchasing power “It’s not a good investment in terms of performance over the last two years,” said IfW President Moritz Schularick, commenting on the current situation on the real estate market.
Different Price expectations of buyers and sellers
According to Commerzbank’s assessment, there appears to be a large gap between the price expectations of buyers and sellers. Many people could not finance the purchase of real estate at current interest rates, while owners did not want to noticeably reduce the price. Despite lower prices, the number of transactions on the housing market remains significantly lower than before the interest rate increase. According to a study by Commerzbank, prices for residential property in Germany are likely to fall slightly. “Low sales indicate further downside potential,” it said in April.
What speaks in favor of price stabilization is that, according to surveys, demand for real estate loans from banks has recently increased again. “If there is no further noticeable increase in interest rates, prices are likely to stabilize around the turn of the year,” it continued. However, this does not apply to new buildings: According to Commerzbank, sellers are unlikely to be willing to make any noticeable price concessions given the enormous increase in construction costs.