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Real estate prices are rising at a record pace

Status: December 22nd, 2021 2:46 p.m.

The prices for residential real estate in Germany are rising at record speed. Economists are alarmed and warn of the bursting of a property price bubble in some German cities.

Apartments and houses in major German cities and in rural areas are becoming more expensive at record speed. In the third quarter of this year, the prices were an average of twelve percent higher than in the same period last year, as the Federal Statistical Office announced. This is the second time in a row, the largest price increase since the beginning of the time series in 2000. Because in the second quarter, real estate prices rose by around eleven percent.

In the largest German cities such as Berlin and Frankfurt in particular, statisticians recorded a particularly high increase of around 14 percent. But prices also rose rapidly in sparsely populated rural districts: there, one and two-family houses were around 15 percent more expensive than in the same quarter of the previous year and condominiums by 11.2 percent. Prices have risen significantly, for example on the coasts and in the foothills of the Alps.

There are still differences between purchase and rental prices: The German Institute for Economic Research (DIW) determined an increase in purchase prices of around nine percent, while rents grew by around half as much.

No danger to the financial sector

The economists at the German Institute for Economic Research are alarmed by this development: “There are increasing signs that apartment prices in some cities and market segments can no longer be explained solely by the development of rents and low interest rates,” explained the DIW real estate expert Konstantin Kholodilin. He warned that there could be “bursting of property price bubbles” in the next few years.

The experts added, however, that “bursting the bubble” would not pose a threat to the entire financial sector. All in all, houses are solidly financed: “The financing structures still appear solid and do not yet indicate excessive debt-financed speculative bubbles, the bursting of which would threaten financial stability,” said Kholodilin.

The experts also positively rate the fact that the number of completed apartments has increased significantly in recent years, which has narrowed the gap between supply and demand on the housing market. At the same time, the number of inhabitants in cities fell slightly last year for the first time in years.

Home office strengthens the trend towards moving to the country

Low interest rates, limited living space, a lack of investment alternatives, especially for large investors, and a robust economy have been driving the real estate boom for a long time. The persistently high material prices for building materials such as wood, cement and steel are also exacerbating the rise in prices.

The reserves of many households also continued to grow in times of pandemic. And the trend towards home office in particular caused prices for real estate in the countryside to skyrocket.

The Deutsche Bundesbank has also been warning of overheating for years. “According to our calculations, the prices of residential properties are ten to 30 percent above the value that is justified by fundamental data. We are increasingly seeing that outside of the metropolitan areas,” said Vice President Claudia Buch in November.

Reference-www.tagesschau.de

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