It's really true: Real estate prices in Germany are falling. For the first time in more than ten years, prices fell in the third quarter of 2022 compared to the previous quarter. This was determined by the Association of German Pfandbrief Banks (vdp), which evaluates actual transactions. The prices fell only slightly and are still above the level of the previous year. But: "The year-long upward trend in residential real estate prices is over," commented vdp Managing Director Jens Tolckmitt on the development.
Nevertheless, the situation for homebuyers is more difficult today than it was a year ago. Because the trend reversal in prices goes hand in hand with rapidly increasing interest rates. "Finanztest" uses example calculations for the seven largest metropolises to show how severely the increased borrowing costs are having an impact. If you want to buy a house with a good location and facilities in one of these cities, you have to expect monthly loan installments of between 3,000 and 7,000 euros despite having decent equity – and that over 30 years.
In the calculation example, a family with 200,000 euros of equity would like to buy a single-family house with 140 square meters. In expensive cities, a large part of this goes to the additional purchase costs alone. If you now have to finance 80, 90 percent or more of the purchase price at interest rates of around 4 percent (repayment 2 percent, term 30 years), you will face horrendous monthly charges according to "Finanztest" calculations.
For many average earners, these loan installments are not affordable. You still have to heat, eat and live. The construction financier Dr. Klein observes that real estate buyers are currently increasingly resorting to alternative strategies such as lower repayment installments and shorter fixed interest rates in order to at least slightly reduce the monthly payments. But that too has its pitfalls, because those who repay less have to pay off longer.
Whether the dream of owning a home for average earners will become more realistic again in the coming year depends on the further development of interest rates and prices. The favorable low-interest world will probably not come back any time soon: Dr. Klein boss Michael Neumann believes it is likely "that construction interest rates will continue to rise in the first half of 2023". According to the mortgage lender Interhyp, most experts expect interest rates to remain the same or rise slightly in 2023.
Real estate prices, on the other hand, will continue to fall according to experts - but how much? The German Institute for Economic Research considers price declines for homes and condominiums of up to ten percent possible. In a recent study, DZ Bank calculates four to six percent. The Pfandbrief banks also expect falling prices, but not price collapses. The vdp also points out that even if prices fell by 20 percent, that would still be the price level of 2020 - but unfortunately without the low interest rates of 2020. The situation remains difficult for people who want to buy a property.
Sources: Finanztest / VDP / Dr. Small / Interhyp