Expert Forecast: Anticipated Increase in House Prices and Rent Rates

Germany's Real Estate Market: A Tale of Two Tcodes

Get ready to dive into the bustling world of Germany's real estate market, where the narrative is divided into purchasing and renting. Here's what the experts predict for 2023, straight from the horse's mouth.

Residential Prices: Taking a Breather

According to a recent survey of 15 banking giants, the growth of residential property prices in Germany this year is expected to slow down compared to earlier predictions. Instead of the projected 3.5% increase from last February, the average rise is now forecasted to be a more modest 3%. This trend is expected to persist up until 2026.

In the last quarter of 2024, residential property prices crept up by 1.9% year-on-year, marking the first increase since 2022. The surge in energy and material costs following the Russian invasion of Ukraine prompted the European Central Bank (ECB) to hike interest rates fiercely to combat inflation. This move cooled the real estate market and brought an end to a prolonged construction boom due to high purchase costs.

"As house prices continue to climb, the availability of affordable housing will likely deteriorate even further this year," warns ING chief economist Carsten Brzeski. Increased unemployment rates, inflated property prices, and unpredictable interest rates could create a stranglehold on the market, leading to a muted recovery.

Rental Prices: Climbing Like a Steep Hill

Nine out of the 15 real estate experts interviewed anticipate a decrease in the supply of affordable housing this year, with two expecting a significant drop. Average urban rental prices are projected to rise between 4% to 5% next year, superseding purchase prices. "The significant reduction in building permits is causing a broad shortage in the housing market," says BayernLB analyst Sebastian Schnejdar. "As a result, potential property buyers forced out of the market due to increasing interest rates are turning to or staying in rental properties." This renter's paradise will exert pressure on rents, particularly in metropolitan areas, while housing demand remains relatively low.

Roughly 13 out of the 15 experts expect the affordability of residential properties for first-time buyers to worsen in 2024, indicating that more people will find their way into the already overcrowded rental market, sending rents soaring even higher.

Insights: Germany's rental market continues to thrive due to strong demand and constraints in the supply of new apartments. The economy is gradually recovering, but economic uncertainties and potential policy changes could impact both the rental and purchase markets. Germany recently proposed extending rent controls in an attempt to curb housing costs, but the actual effect on rental prices depends on the specific measures employed. Different cities in Germany experience varying rental market conditions, with cities like Munich boasting high rents, while others like Düsseldorf offer more affordable options.

(Reporting by Indradip Ghosh and Rene Wagner; editing by Christian Goetz; for further questions, please contact our newsroom in Berlin at [email protected])

Premium Articles:

Amazon - New Trade Setup
How to Recoup Money from the Tax Office
Small-Caps: More Opportunities, Lower Risks
Further Articles

University of Michigan: Consumer Sentiment Stabilizes in May
High Costs for the Introduction of the Digital Euro
US Economy struggles to Keep Up
Waller Open to Rate Cuts This Year
Powell Meets Trump: Fed Insists on 'Non-Political Analysis'
Further Articles

With a projected decrease in the supply of affordable housing in 2023 and rising rental prices, Germany's real-estate market may shift towards a renter's paradise, making investing in the housing-market a potential opportunity for those looking to invest in the finance sector.
Despite the slowdown in residential property prices this year, experts warn that increased unemployment rates, inflated property prices, and unpredictable interest rates could create a stranglehold on the real-estate market, causing a muted recovery and posing risks for both investing and homeownership in the short term.