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In the first quarter of this year, German house prices experienced a significant decline, reaching a record rate of 6.8 percent. Factors such as increased borrowing costs, inflation, and weaker economic growth have had a negative impact on Europe’s largest property market.
According to the federal statistical office, the year-on-year drop in the index of German residential property prices was the largest since records began in 2000. This decline in house prices is indicative of ongoing challenges in the German housing market, which is also facing a slowdown in housebuilding. In April, only 21,200 flats were approved for construction, marking a 31.9 percent decrease compared to the previous year—a decline not seen since March 2007.
Nevertheless, there are signs that the decline in house prices is moderating, as prices fell by 3.1 percent from the previous quarter. This represents a smaller decrease compared to the 4.9 percent drop observed between the third and fourth quarters.
The statistical agency noted that lower demand resulting from higher financing costs and persistent high inflation are likely the primary reasons behind the decrease in purchasing prices.
According to Carsten Brzeski, an economist at Dutch bank ING based in Frankfurt, the German housing market has transitioned from favoring sellers to favoring buyers, and the number of transactions has nearly halted. He further noted that the official price index can be considered almost fictional due to its reliance on a limited number of recent transactions.
Since last year, German house prices have been on a declining trend. According to Franz-Bernd Grosse-Wilde, the CEO of Spar- und Bauverein eG Dortmund, a housing association in the city of Ruhr, the introduction of new regulations, particularly those aimed at improving the energy efficiency of homes, has resulted in a lack of attractiveness for real estate investments. He highlighted that potential investors are hesitant due to the uncertainty surrounding upcoming refurbishment obligations.
The federal statistical office reported that house prices in both urban and rural areas experienced a decline in the first quarter, although the decrease was more significant in urban areas. The most substantial price drops were observed in Germany’s seven largest cities—Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart, and Düsseldorf—where prices for single- and two-family houses dropped by 10.4 percent, and prices for flats fell by 6.4 percent.
Prices in sparsely populated rural areas also experienced declines, with single- and two-family houses seeing a drop of 7.8 percent, and freehold flats witnessing a decline of 5.3 percent.
Experts have pointed out that the data reflects a situation where many Germans are no longer able to afford the purchase of a house or flat, resulting in a decrease in real estate transactions. The demand for mortgages has been decreasing since May 2022, although there was a slight recovery in March.
According to Dr. Klein, a German mortgage broker, the best rate for a new 10-year mortgage valued at €190,000 for a property worth €352,000 has increased from 0.43 percent at the beginning of 2021 to 3.39 percent. The broker also mentioned that the monthly repayments on a typical German 10-year mortgage of €300,000, representing 80 percent of the property’s value, reached €1,505 in May. This marks an increase of over €300 compared to the previous year.
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