Houses and apartments: Residential real estate is becoming more expensive

Status: 06/24/2022 09:59 a.m

The prices for apartments and houses in Germany rose again by more than ten percent in the first quarter of the year. In the medium term, however, experts expect the real estate boom to come to an end.

Houses and apartments in Germany have become more expensive by more than ten percent for the fourth quarter in a row. However, the price increase appears to be slowing down somewhat. In the period from January to March 2022, prices for residential real estate rose by an average of 12.0 percent compared to the same period last year, according to preliminary figures from the Federal Statistical Office.

Within a year, the rate of increase exceeded the ten percent mark for the fourth time in a row. Compared to the previous quarter, however, apartments and detached and semi-detached houses only increased in price by an average of 0.8 percent. “This indicates a slight weakening of the momentum,” said the Wiesbaden authority. In the third quarter of 2021, prices for residential real estate rose by 4.1 percent and in the fourth quarter of 2021 by 3.1 percent compared to the respective previous quarter.

Living in cities is significantly overpriced

The Federal Bank has been warning for a long time of increasing dangers on the German real estate market in view of rising prices. In the cities, they were between 15 and 30 percent above the level that seems justified by the longer-term economic and demographic factors, the central bankers emphasized in February. The Corona crisis has significantly increased the tendency.

During the pandemic, the trend towards working from home has boosted interest in rural housing. But while the demand is high, the supply of residential real estate is scarce at the same time. This excess demand drives prices up.

In view of rising interest rates, expensive building materials and ongoing supply bottlenecks, some experts expect after more than ten years but a weakening of the real estate boom in Germany. Especially with rising interest rates more and more people could no longer afford to buy an apartment or house.

Demand for purchase real estate collapses

The demand for real estate for sale in the first quarter of 2022 fell by 17 percent within a year, as the online portal Immoscout24 recently determined. Experts at Bank LBBW expect a price correction above all if interest rates continue to rise sharply while the economy is not making any headway. Then price drops of 20 to 25 percent are possible.

Advertisements for residential properties for sale are now online longer than in the previous year, as it is more difficult for sellers to find buyers. Instead, significantly more people are looking for properties to rent again. “These developments could have a dampening effect on price developments in the medium term,” said ImmoScout24 Managing Director Gesa Crockford. Additional costs for buyers due to higher interest rates could at least be cushioned somewhat.

Offer keeps stalling

Despite the slowdown, however, the demand for real estate is still well above the level at the end of 2019 and thus before the Corona crisis. In addition, the supply is unlikely to increase in the near future given the stuttering housing and house construction.

After the previous record month, orders in the German construction industry fell more sharply in April than they have in almost ten years. Orders in the main construction trades were 16.4 percent lower than in March. “The last time there was a major decline compared to the previous month was in November 2012 with minus 20.1 percent,” said the Federal Statistical Office.

However, it must be taken into account that March, which was characterized by many large orders, had the highest value for incoming orders ever measured in a month. However, compared to the same month last year, orders fell significantly by 9.7 percent. The construction industry is currently suffering from supply bottlenecks and massively increasing prices for many building materials. Russia’s invasion of Ukraine at the end of February exacerbated this development.

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