What are real estate prices doing?
“The decline is coming to a halt”
October 6, 2023, 2:16 p.m
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Real estate prices have fallen sharply. But further severe corrections are no longer to be expected, says Lucie Lotzkat from the brokerage firm Von Poll Finance and explains in the podcast “Zero Hour” what prospective buyers need to pay attention to.
Prices on the real estate market have been falling significantly for several months. How does this affect you?
Lucie Lotzkat: Of course we cannot escape such a development either. However, we must not forget that there has been an immense price increase in the last five years. So when we talk about falling prices now, that means we are still above pre-pandemic levels.
There is always talk of an average price drop of around ten percent. Do you expect this to go down even further?
Around ten percent is also what we observe. In my Vechta district, where I manage the Von Poll location, there were price drops of between 5 and 20 percent. This depends very much on the type, location and need for renovation of the property. In the last few weeks, however, we have noticed that this decline is coming to a halt. We have the feeling that a new equilibrium has emerged and prices are stagnating. We therefore no longer expect significant corrections.
How is the current situation reflected in demand for you?
We have had a significant drop in demand. If we used to have 20 inquiries in the Vechta district, then in the last few months there have perhaps only been five. Of course, the rise in interest rates has meant that fewer people can afford a property. At the same time, supply has increased. There are many who come to the conclusion that now is the right time to sell. Because they don’t want to wait any longer or are afraid of future modernizations.
What factors are currently shaping the market – apart from the rise in interest rates?
There are three other cost-related factors that dampen prices: the cost of living, the additional housing costs and the renovation obligations that already exist or will be added in the future. On the other hand, there are supply factors that can work in the other direction.
Which are they?
First of all, there is a slump in new construction activity. The remaining demand is therefore concentrated on the existing buildings. In addition, support is being expanded by politicians, for example with KfW funds or through the reduction in real estate transfer tax, which is currently still being discussed. And thirdly, rents have been rising in the last few months, and we assume that this will continue. This changes the calculation between renting and buying. In some regions the purchase may be more worthwhile.
Aren’t many customers currently just waiting because they don’t know what’s coming?
Yes and no. There is a difference between investors on the one hand and owner-occupiers who purchase a property because they want to start a family, for example. I always advise interested parties: If I find a property that I can imagine will become the center of my life, then I should try to arrange financing now.
A big question when it comes to financing is always the amount of equity. What has changed for customers?
There is always the assumption that as a buyer you need 20 or even 30 percent equity. But that is not absolutely necessary. Of course, a high equity share improves my financing conditions and reduces my monthly payment. But it’s not the case that I necessarily need a fixed amount of equity. For the bank, it is always crucial whether the buyer can afford the monthly payment – depending on the living and housing costs.
So what do customers need to pay attention to now?
First, the question of equity should be clarified. Then interest rate security is important: Over how long do I want to secure the interest and how much flexibility do I need during this time? Is the family planning to have children so that I may have to expect less income for a while? In the end, what is always crucial is what budget is available each month to implement the financing.
The interview has been shortened and edited for clarity.
Lucie Lotzkat is managing partner at Von Poll Finance and branch manager at real estate agent Von Poll in Vechta, Lower Saxony. Von Poll is one of the largest brokerage companies in Germany.
Listen in the new episode of “Zero Hour“
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You can find all episodes directly here RTL+, Apple or Spotify or via Google.