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Germany seeing price ‘turnaround’ on property market

House values are rising in Germany after two years of falling prices, new research has found.

Published: 8 August 2024 16:16 CEST
A view of homes in Erfurt, Thuringia.
A view of homes in Erfurt, Thuringia. Photo: picture alliance/dpa | Martin Schutt

There are big changes on the German property market, according to research by the Kiel Institute for the World Economy (IfW).

The IfW found that property prices rose in the months from April to June this year – after two years of declining prices.

Compared to the first quarter of the year, prices for condominiums rose by 2.4 percent in the second quarter. Single-family homes cost two percent more. Meanwhile, prices for multi-family homes rose by 4.4 percent. Prices had fallen in the previous quarter.

The figures are based on the German Real Estate Price Index (GREIX) property price index, which contains data from 19 cities. The index is based on the purchase price collection of local expert committees.

READ ALSO: Is it a good time to buy a home in Germany?

There were signs in previous months that the property market was beginning to see changes – now this study seems to confirm the turnaround.

“The trend reversal on the property market has begun,” said IfW property expert Jonas Zdrzalek. “The great uncertainty of the past few years and months is clearly subsiding and the outlook for falling interest rates is stabilising the market.

“Investors appear to be regaining confidence in the long-term value appreciation of property. Added to this is the slump in new construction, which is tightening supply and thus supporting price momentum,” Zdrzalek said.

Even adjusted for inflation, i.e. measured in current purchasing power, real estate has increased in value for the first time in two years, said the IfW.

READ ALSO: How much do you need to earn in Germany to buy a million euro home

Rising prices in Hamburg, falling prices in Cologne

Among Germany’s seven most populous cities, prices for owner-occupied flats rose the most compared to the previous quarter in Hamburg (by 4.3 percent), Frankfurt (3.7 percent) and Düsseldorf (2.2 percent).

In Stuttgart, flats became 0.6 percent more expensive. In Cologne, however, prices fell by 0.4 percent. The researchers pointed out that prices had already gone up slightly in Cologne in the first quarter of 2024.

There is also a striking trend emerging in Germany’s medium-sized cities. In Münster, for instance, a significant increase of 5.6 percent on house prices was recorded in the second quarter. Prices had already risen by over four percent in the 1st quarter of 2024. It means condos have now become around 10 percent more expensive in the first half of 2024.

There was no data available for Munich and Berlin. 

If the trend reversal continues, the Kiel-based economic researchers believe it is possible that the large-scale price correction on the property market is coming to an end after around two years. A correction is usually understood to be a downward movement in an index, for instance, which corrects excessive values.

According to the IfW, the GREIX price index recorded a price decline of around 14 percent in around two years. The correction was strongest in Stuttgart where prices have fallen by more than 20 percent.

READ ALSO: ‘Burst bubble’ – Germany sees record drop in property prices

“The GREIX data suggests that the property sector is regaining momentum and that the market has decided on a direction after volatile months,” said Zdrzalek.

“If the price turnaround is confirmed, the correction phase would only have been the interruption of a long-lasting upward trend.”

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PROPERTY

IN CHARTS: How German property prices are forecast to rise over next decade

In what may come as welcome news to those looking to buy property in Germany, the WohnAtlas 2024 reveals that German cities saw a clear drop in real property prices last year - with only small increases forecasted until 2035.

Published: 8 August 2024 17:00 CEST
IN CHARTS: How German property prices are forecast to rise over next decade

If you’re expecting a raise, where might you be able to afford a home in Germany?

After all, if property prices in your part of Germany only went up a little in the last year, but your salary increased by a lot more – a home has suddenly become more affordable for you, even if the listed price for an average one where you live went up slightly. This is what’s mean by “real” property prices. It measures the bang you get for the money you actually earn – which could effect your homeowning chances.

Using calculations by the Hamburg Institute for the World Economy (HWWI), the 2024 Postbank WohnAtlas revealed that real property prices will probably increase only slightly over the next ten years or so – meaning that homes aren’t likely to get a lot more affordable – or unaffordable – than they already are.

Last year, most of Germany actually saw a fall in these real property prices. In 2023, only 16 of Germany’s 400 or so odd regions actually saw an increase in real property prices – that is where listing prices are going up at a faster pace than salaries.

In fact, some of the places that saw the biggest drops might surprise you – as charts compiled by The Local suggest.

Real Property Price Drops Germany

Chart by Aaron Burnett using Datawrapper.

The largest real property price drop was seen in Bayreuth in northern Bavaria – one of the world’s landmark spots for opera. According to the WohnAtlas, property there is almost 25 percent more affordable than it was at the end of 2022.

In a development that might surprise some, the Bavarian state capital of Munich – statistically the most expensive place to live in Germany – actually became a more affordable place to buy a flat or house last year. Even so, as another chart below demonstrates, it remains the most expensive place in Germany to buy property.

The national capital of Berlin, which has seen clear spikes in property values in recent years, even saw a price decrease in real terms – although by much less than seen in some other German cities and regions.

READ ALSO: Germany seeing price ‘turnaround’ on property market

How will prices trend overtime?

Although forecasts are by no means guaranteed, the WohnAtlas generally predicts that real property prices are likely to remain fairly stable over the next decade or so – with only slight increases predicted to 2035.

Again, that doesn’t mean listed property prices aren’t going to go up, but rather that wages should generally keep pace with home prices as they rise – argues the WohnAtlas.

Even in Germany’s largest and most expensive cities, property prices aren’t necessarily going to run away from your paycheque.

Real Property Price Forecasts Germany

Real property price increases measure the degree to which property prices will rise – while taking salary increases into account. They are thus designed to keep tabs on affordability.

The city slated to see the largest real increase in property prices over the next decade is the Saxon city of Leipzig, which can expect a 2.2 percent increase in real terms over the next 10 or so years. At the same time, Germany’s traditionally more expensive cities will see their property affordability relative to salaries suffer only slightly. According to the forecast, Hamburg’s will barely move at all.

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

Where is it already expensive?

Of course, just because a German city or region has become relatively more affordable – or at least not forecasted to see too much of a price increase relative to wages, that can be of little comfort to potential buyers who are already dealing with a lack of affordable property.

WohnAtlas data reveals clear disparities in overall price per square metre.

German Property Price per qm

In what is unlikely to come as a big surprise for many, Munich remains by far the most expense place to purchase property in Germany, with the average price per square metre more than double Leipzig’s, for example.

Even if prices may be headed for stabilisation in Germany for a few years – the cost to buy still remains high in many cases.

READ ALSO: How much do you need to earn in Germany to buy a million euro home?

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