WIESBADEN (dpa-AFX) – Prices for apartments and houses in Germany fell at a record pace in the third quarter. According to data from the Federal Statistical Office, residential real estate prices fell by an average of 10.2 percent compared to the same period last year – the strongest decline since the time series began in 2000. This accelerated the price decline after the already sharp declines in the first two quarters. Prices fell on average in both cities and rural regions. Single- and two-family houses became cheaper than condominiums.
Compared to the second quarter, residential properties were 1.4 percent cheaper, as the statisticians announced on Friday in Wiesbaden. With the renewed minus, the first price decline since 2010 is apparent for the current year as a whole.
In the metropolises of Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf, single and two-family houses fell in price by 12.7 percent in the third quarter, and buyers had to pay an average of 9.1 percent less for apartments than a year before. In sparsely populated rural districts, prices for one- and two-family homes fell by 12.4 percent, while condominiums were 5.6 percent cheaper year-on-year.
The main reason for the drop in prices is the sharp rise in interest rates, which have made loans more expensive, as well as high construction costs. Many people can no longer afford or do not want to afford their own four walls. Banks’ new business with real estate loans has collapsed. Prices have been falling since mid-2022, the peak of the long real estate boom.
Construction crisis continues
At the same time, demand for living space remains high, not least because of high levels of immigration, while new construction has fallen into crisis due to the rise in interest rates and expensive materials. Associations in the housing and construction industry expect around 245,000 completions for the whole of 2023 – significantly fewer than in the previous year (a good 295,000). The Ifo Institute is observing a wave of cancellations in construction projects.
According to the Central Association of the German Construction Industry, there were 22 percent fewer residential construction orders from January to October than in the previous year. The value of orders in the construction industry as a whole fell by 6.3 percent after adjusting for prices compared to the previous month, as the Federal Statistical Office reported. Federal Construction Minister Klara Geywitz (SPD) is nevertheless optimistic. She expects that around 270,000 apartments will be completed in total this year and around 265,000 in 2024. The housing market will probably brighten “at the end of 2024, beginning of 2025”, she told the “Rheinische Post” (Friday). However, the numbers are far from the original target of 400,000 new apartments per year.
Experts also see no prospect of improvement. DZ Bank estimates that the number of annual completions could fall to 200,000 apartments by 2025. There is also uncertainty again about funding for new buildings due to the budget crisis: The Federal Ministry of Construction recently announced that the funding pot for the program for climate-friendly new buildings was empty. New applications could only be submitted again as soon as the 2024 federal budget comes into force. According to DZ Bank, the construction crisis is slowing the price decline as living space continues to be scarce.
First full-year price decline since 2010
With the loss in the third quarter, this year marks the first price decline since 2010, when the real estate boom began. Large cities such as Berlin, Hamburg and Munich were particularly affected, according to an analysis published on Wednesday by the German Institute for Economic Research (DIW).
The DIW calculations show that the road to home ownership remains rocky for buyers. Despite the declines in recent quarters, real estate is still much more expensive than at the beginning of the boom: the prices for single-family and terraced houses doubled between 2010 and 2023, according to the researchers. Rents rose significantly less during the period – by a total of 53 percent. A condominium in large cities currently costs as much as 27 annual rents; last year it was 28 annual rents.
“Until 2022 there was a speculative price bubble in Germany, one of the largest in the last 50 years,” said DIW study author Konstantin Kholodilin. “Prices have been falling since then. The bubble has burst.”/als/mar/DP/jha