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PROPERTY

German home prices drop for first time in over 10 years

At the end of 2022, the price of residential real estate in Germany fell more sharply than at any time since 2007 - and at all since 2010. What accounted for the dip?

Published: 28 March 2023 16:51 CEST
Luxury flats in Berlin
Four of Germany's most expensive apartments in 2022 were sold in Berlin. Photo: picture alliance/dpa | Christophe Gateau

Prices for apartments, as well as single-family homes and duplexes, dropped by an average of 3.6 percent in the fourth quarter last year compared to the same quarter the previous year, according to newly published data from Germany’s Federal Statistics Office.

Compared with the third quarter of 2022, the decline was even more pronounced at minus five percent. 

It marked the first dip in prices since the end of 2010, when there was a drop of 0.5 percent. 

“The decisive factor for the decline in prices is likely to be lower demand as a result of increased financing costs and persistently high inflation,” wrote the Statistics Agency in a statement.

READ ALSO: How rents are changing in Germany’s five largest cities

They added that inflation was driving up the interest on real-estate loans – which for much of 2021 hovered around a low 1.16 percent. By December 2022, the interest rate had climbed to 3.51 percent, according to the Bundesbank.

The last time asking prices for residential real estate fell more sharply than at the end of 2022 was in the first quarter of 2007, with minus 3.8 percent compared with the first quarter of 2006.

Housing prices have been steadily climbing in Germany since 2010 due to a growing population, lack of supply and the previously low interest rates. 

Purchase prices climbed by 84 percent between 2010 and 2021, according to the Statistics Agency.

A view of Stuttgart.

A view of Stuttgart. Photo: picture alliance/dpa | Marijan Murat

Prices still rising long-term 

In 2022 as a whole, however, residential property prices still rose by 5.3 percent year-on-year because of the increases in the first three quarters. 

In 2021, prices shot up 11.5 percent, the strongest year-on-year increase since the time series began in 2000. This has largely been considered a ‘rebound’ effect following a slowdown at the beginning of the pandemic. 

Both urban and scarcely populated rural areas saw price declines in the final quarter of 2022, according to the statistics. 

Prices for family homes also fell more sharply than those for apartments. 

In the seven metropolitan areas of Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf, prices for single family homes and duplexes fell by 2.9 percent, while buyers had to fork over 1.6 percent less for apartments.

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Vocabulary 

the deciding factor – ausschlaggebend

decline – (der) Rückgang

persistently – anhaltend 

interest – (die) Zinsen

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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PROPERTY

Is it a good time to buy a home in Germany?

The housing market in Germany has been turbulent over the last few years for both buyers and sellers. We take a closer look to explore whether it's a good time to buy a home and what the outlook is.

Published: 14 May 2024 11:45 CEST
Updated: 14 May 2024 14:04 CEST
Is it a good time to buy a home in Germany?

There have been signs that the property market in Germany is beginning to see a turnaround after two years of falling prices. 

But different studies show the situation remains unpredictable. 

For instance, a recent study by real estate platform ImmoScout24 found that falling interest rates are sparking a desire to buy properties once again which is fuelling the demand. 

The real estate platform found that asking prices were showing signs of increases, particularly in large German cities. 

READ ALSO: Why property prices in Germany are likely to rise this year

“We therefore assume that purchase prices will rise in future,” said ImmoScout24 Managing Director Gesa Crockford.

In contrast, Bausparkasse Schwäbisch-Hall predicts that property prices in Germany will slow down rather than see a trend reversal. The building society estimates that house prices will fall by 1.7 percent in 2024. At the end of 2023, experts there believed the decline would be nearer 2.8 percent. 

So what should you do if you’re considering buying a home? We look at the different analysis out there to help you make an informed decision. 

Why could property prices in Germany fall?

When property portals report rising house prices in their online ads, these are usually asking prices that still have to go through the buying process. Flats may end up being sold for less than they were initially advertised online – or not at all if buyers and sellers cannot reach an agreement.

Commerzbank’s assessment is that, as in the previous year, there are major differences between the price expectations of buyers and sellers. Sellers are still unwilling to accept large discounts and, if in doubt, prefer to wait longer until the market has recovered.

Buyers, meanwhile, are realising that offers are still very expensive. According to the bank, many people are unable to finance a property purchase with the current interest rates in Germany. And expectations that the European Central Bank (ECB) would cut interest rates quickly and sharply have not been fulfilled. 

It means that the number of transactions on the housing market that are actually taking place is still significantly lower than before the rise in interest rates in 2022. According to Commerzbank, this indicates that Germany’s property market could continue to decline.

Why might property prices in Germany rise?

Looking at the other side of the coin, there are certainly lots of experts saying that homes in Germany are already being sold at higher prices again – including in Munich where prices had previously fallen sharply.

Along with the likes of ImmoScout, nationwide real estate firm McMakler has also reported those price changes. The increase in property loans also suggests that there is a stabilisation of the market and an end to the low demand.

Flats in Hamburg.

Flats in Hamburg. Photo: picture alliance/dpa | Daniel Bockwoldt

This is because interest rates no longer act as a deterrent as they did a few months ago. Even in the run-up to the ECB’s expected interest rate decisions, refinancing on the capital market has become more favourable: instead of four percent as they were at their peak, interest rates on property loans are more likely to be back at three percent.

READ ALSO: What you need to know about buying property in Germany

Is there a difference when buying a new-build or an older property?

As a rule, new-build houses or flats directly from a property developer are unlikely to be any cheaper at the moment – especially because of the high construction costs.

Experts say, however, that there may be some solid price reductions on existing flats and older buildings, especially for flats with an outdated energy standard and a need for renovation.

One thing to keep in mind, though, is that banks are often asking for risk premiums for homes that are likely to need refurbishments due to the ‘heating law’ and CO2 taxation. If interest rates of six percent instead of three percent have to be paid an older home, buyers can only benefit from the price drop to a limited extent.

Furthermore, it is unclear which renovations the German government will give subsidies for in future as part of EU legislation aimed at climate-neutral construction.

So is it a good time to buy a home in Germany?

Until a few weeks ago, most property experts agreed that there would be a recovery over the course of 2024 and that house prices would not fall any further. It is now considered possible that the low point has not yet been reached. The price slide could continue despite the expected interest rate cuts by the ECB this summer.

But things still remain unclear. Estate agents have reportedly been urging people interested in buying a home to hurry due to possible price hikes in view of rising rents and the high demand for housing in urban centres. However, the buyer’s market, in which potential buyers take their time and negotiate prices downwards, could continue. In some cases, new-build flats are virtually impossible to get off the market. 

READ ALSO: The hidden costs of buying a house in Germany

It’s worth noting that the Kiel Institute for the World Economy (IfW) doesn’t yet indicate that the market in Germany has reached a stabilisation of prices. 

There are stronger fluctuations than in normal times, which buyers may be able to utilise in individual cases, experts say. The main reason for these outliers is that the number of transactions is low and therefore less data is available than usual.

Overall, though, buying a home is a personal decision and depends on many factors, including your financial situation, needs and the area you live which will have its own property market trends. 

The IfW also handily publishes the Greix (German Real Estate Index), where people can check for themselves what they might expect to pay for a home in their region. The data is collected on the basis of actual, notarised sales prices so it’s worth looking into while you’re doing your research. 

It may also be a good idea to chat to a professional real estate expert in your area when deciding on whether to buy a home. 

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