“The outlook is bleak”: the mood in housing construction is worse than ever

“The outlook is bleak”
The mood in housing construction is worse than ever

A lack of new orders, canceled projects and high interest rates continue to create a bleak outlook for the housing construction industry. The IFO business climate barometer falls to a historic low. The industry’s hopes rest on the European Central Bank.

The mood among housing construction companies in Germany fell to a historic low at the beginning of the year. The barometer for the business climate fell from minus 56.9 to minus 59.0 points in January, as the Munich IFO Institute announced in its monthly survey. This is the lowest value ever measured.

There is no rapid improvement in sight, as the prospects for the coming months are assessed to be worse than ever: the barometer for expectations fell from minus 64.7 to minus 68.9 points. “The outlook for the coming months is bleak,” said the head of the IFO surveys, Klaus Wohlrabe. “Housing construction continues to be exposed to a double burden.” While on the one hand there were no new orders, on the other hand projects continued to be canceled. “A lack of orders is putting a strain on the business of residential builders,” said Wohlrabe.

In January, 52.5 percent of companies complained about a lack of orders, compared to 56.9 percent in December. There was also a slight decline in cancellations: 17.4 percent were affected, after 22.1 percent at the end of 2023. However, according to the IFO Institute, this is no reason for optimism. “We cannot yet speak of a turnaround in housing construction. The difficult conditions have hardly changed,” said Wohlrabe. “High interest rates and construction costs don’t make things any easier for builders.”

When will the ECB cut interest rates?

However, there is a prospect that the European Central Bank (ECB) will cut its key interest rate several times this year in view of declining inflation. This means that building interest rates are also likely to fall, making financing cheaper.

Investors on the financial market have recently somewhat reduced their speculation about a rapid first interest rate cut by the ECB. A step down at the April interest rate meeting on the money market is now only estimated to have a probability of around 48 percent.

In January, the first interest rate cut in April was temporarily included in the prices. Since then, several ECB monetary authorities have tried to dampen expectations on the financial market.

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