Rising inflation and interest rates lead to falling real estate prices. However, housing remains very expensive, especially in commuter belts and metropolitan areas — and buying a home is often difficult to finance, especially for families.
Real estate prices in Germany are cheap again: in the first three months of this year, prices fell by an average of 2.1 percent compared with the same period last year, according to the real estate price index of the German Pfandbrief Banking Association. The association represents the most important real estate finance institutions in Germany, including Deutsche Bank, Commerzbank, Aareal Bank, Landesbanken and the large savings banks.
Open real estate market
The current figures confirm a trend published last year: After more than a decade of prosperity, the housing market is changing. The real estate price index, which includes not only owner-occupied dwellings but also multifamily and commercial real estate, fell 3.3 percent from a year earlier. This is the largest drop since records began in 2003.
Real estate prices fell the most in Frankfurt, which fell by 6.4% during the year and by 2.2% compared to the fourth quarter of 2022. Hamburg, Dusseldorf, Cologne, Stuttgart and Munich were in between, down between 2.3% and 3.8% for the year. Only Berlin apartment and house prices rose by 1.0% year-on-year.
Metropolis still too expensive for many families
However, property prices in the German metropolis have not fallen as sharply as in other parts of the country. Overall, residential real estate prices in the seven largest cities fell 1.4%. This puts particular pressure on the growing number of young families who are increasingly moving from big cities to peripheral areas – often because they have no other choice. Because it’s still hard for families living in some big cities to afford it.
This is also shown by a new study carried out by the German Institute for Economic Research (DIW) and the Allensbach Institute on behalf of Sparda Bank. According to this, despite the falling prices, the average purchase price in German cities is still 4180 euros per square meter, while in the countryside it is 2806 euros. In Germany’s seven metropolitan cities, an average of 6,038 euros per square meter is also paid.
Turns out, for 388,000 euros – which is how much the average German invests in a property – you can only buy an apartment of 44 square meters in Munich. After all, in Cologne, this money can also buy 81 square meters of living space.
Surrounding area prospers
As a result, all seven major German cities have recently lost their 30- to 50-year-old population. Frankfurt, Stuttgart, Munich and Cologne were particularly affected. Pekka Sagner, a real estate economist at the German Institute for Economic Research, said that as long as you can easily reach the city by public transport or highways, surrounding areas will thrive. Buyers can currently save more than a third when buying a house or apartment if they move to the countryside rather than the city, according to the study.
But that trend may soon be reversing, especially on the outskirts of the metropolises: in six of the seven metropolitan areas, prices have risen more than the cities themselves since 2017. This is most pronounced in Berlin and Hamburg. Only in Frankfurt am Main the trend is balanced.
German ownership stagnates
Other figures from the Allensbach study show this too: Nationally, homeownership rates have stagnated for 12 years, making Germany the lowest country in the European Union. Currently, every two potential buyers are hesitating and waiting. Only 12% of the more than 1,000 respondents had seriously considered buying property in the past two to three years.
From the researchers’ perspective, there’s one particular reason: Sharp rises in interest rates and uncertainty surrounding climate-friendly renovations are making many potential buyers hesitant. Ancillary acquisition costs such as real estate transfer taxes and fees for notary public and land register registrations are becoming a growing hurdle.
“Especially the theme of energy-efficient retrofits and the obligations I might have to take on when buying an existing property play a role,” said Florian Rentsch, chairman of the board of directors of the Sparda Banks association. For many, the question is whether they will have to for the foreseeable future. Invest in a heat pump, reroof or insulate with new insulation. Politically, there is an urgent need to spell out the fate of real estate owners.