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Real estate prices are collapsing – but these 3 cities remain expensive

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Real estate prices are collapsing – but these 3 cities remain expensive

Real estate prices are falling sharply. shutterstock

The Kiel Institute for the World Economy (IfW) reports a historic decline in residential property prices in Germany.

Compared to the previous year, prices for condominiums fell by 8.9 percent, for single-family homes by 11.3 percent and multi-family homes by 20.1 percent.

IfW President Moritz Schularick sees a phase of price correction as appropriate and not worrying; Researchers expect possible stabilization in the fourth quarter of 2023.

In 2023, the real estate market in Germany recorded an unprecedented decline in prices, as reported by the Kiel Institute for the World Economy (IfW). This drop is considered the most significant since house price records began around 60 years ago. According to the IfW, all types of residential properties are affected by this development, including condominiums and single- and multi-family homes.

The German Real Estate Index created by the IfW and its partners, which is based on the notarized sales prices of the expert committees, shows a decline in prices for condominiums by 8.9 percent, for single-family homes by 11.3 percent and even for multi-family homes over the past year by 20.1 percent. Taking the inflation rate into account, the depreciation is about five percentage points higher. The IfW researchers comment that real estate prices have never fallen “so much so quickly”.

In comparison, the previous sharpest price decline in the 1990s lasted around ten years. Against this background, the real estate market has been characterized by an unprecedented boom since 2009, with prices increasing three to four times, depending on the segment, before falling dramatically in 2022 as a result of sharp increases in loan interest rates. This has significantly increased financing costs and discouraged both private individuals and large investors from purchasing property.

“Not worrying”

IfW President Moritz Schularick commented on the development: “In view of the exorbitant price increases for over 10 years and a new interest rate environment, a phase of price correction is certainly appropriate and, even to the extent that it has been so far, is not worrisome for the overall economy.” He added: “Property prices may just be starting to bottom out. But this will only become clear in the coming quarters.”

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At the end of 2023, the market stabilized slightly. In the fourth quarter, prices for condominiums only fell by 0.6 percent, while single-family homes fell by 1.2 percent. Multi-family houses even recorded an increase of 4.7 percent, although the IfW points out that the fluctuations in this segment are relatively high due to the low number of transactions.

Different trends emerged in the seven largest German cities. While prices in Cologne and Stuttgart fell by 3.6 percent each, they remained almost stable in Berlin, Frankfurt and Hamburg. No current data was available for Düsseldorf and Munich.

Compared to the same period last year, prices were significantly lower in all segments. Official figures from the Federal Statistical Office on the real estate market in the last quarter of 2023 are still pending.

With material from dpa / tlf

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