Biggest decline since 2000
Real estate prices are falling at record speed
06/23/2023 10:57 am
The prices for German living space continue to fall: with an average decline of 6.8 percent, residential real estate is becoming increasingly cheaper, especially in large cities. The reason for this are rising construction costs and persistent inflation, which is depressing the solvency of interested parties.
With the sharpest drop in prices for apartments and houses in 23 years, the downward trend on the real estate market accelerated at the beginning of the year. According to the Federal Statistical Office, residential real estate prices fell by an average of 6.8 percent in the first quarter compared to the same quarter of the previous year. It was the sharpest decline within a year since the start of the time series in 2000. Compared to the fourth quarter of 2022, residential real estate was 3.1 percent cheaper on average.
As early as the fourth quarter of 2022, the authority had identified noticeable price declines after years of the real estate boom. Actually a reason for joy for buyers. However, many people can no longer afford to purchase their own turn because the sharp rise in building interest rates has made loans much more expensive. Added to this is persistently high inflation, which is reducing people’s purchasing power. The banks’ new business with residential real estate loans to private individuals has been on the ground for months, in April it collapsed again by around half, according to Bundesbank data.
According to the information, prices fell at the beginning of the year in both cities and rural areas. They decreased more in the cities. The largest declines compared to the same quarter of the previous year were recorded in Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf. Here, detached and semi-detached houses became cheaper by 10.4 percent, and 6.4 percent less had to be paid for apartments than in the first quarter of 2022. At the same time, the demand for living space remains high, not least because of the high level of immigration, while new construction is due to higher interest rates and expensive building materials are faltering.
Traffic light will miss new building target
Building Minister Klara Geywitz has admitted that the traffic light coalition will miss the target of 400,000 new apartments per year. The main association of the German construction industry expects that a maximum of 250,000 apartments will be completed this year, after 295,300 units last year. The pressure on rents is therefore likely to remain high.
According to the IFO Institute, the housing crisis in Germany is threatening to worsen. The Munich economic researchers expect only around 200,000 new apartments in 2025, 175,000 of them in new residential buildings. “Residential construction projects have become enormously expensive due to the significantly increased construction costs and the sharply increased interest rates,” explained IFO expert Ludwig Dorffmeister recently. “At the same time there was a sharp reduction in government funding.”
The ZIA industry association assumes that there will be a shortage of around 700,000 apartments in 2025. The unfavorable market environment, with interest rates that are currently too high in relation to the expenses for real estate, is becoming an ever greater burden for companies – and ultimately for society as a whole, the industry association warned.
The construction industry, which is one of the mainstays of Germany’s economy, is clearly feeling the effects of the restraint. The order slump continued in April. According to the Federal Statistical Office, the main construction trades recorded fewer orders adjusted for price increases (in real terms) – both compared to March 2023 (minus 1.3 percent) and compared to April of the previous year (minus 10.3 percent).
From January up to and including April, new orders fell by 16.9 percent (real) and by 4.2 percent in nominal terms compared to the same period of the previous year after adjustment for calendar and price adjustments. Structural and civil engineering are recorded. “Residential construction remains the big problem child of the construction industry,” said Felix Pakleppa, general manager of the German Construction Industry Association (ZDB). He called for “immediately noticeable” investment incentives for private and institutional investors. “Otherwise we will permanently lose skilled workers and the housing construction target of 400,000 units (residential units) per year will remain unattainable for years to come.”