Housing: IfW: Sharpest fall in real estate prices in 60 years

According to the Kiel Institute for the World Economy (IfW), prices for residential real estate in Germany fell to a historic extent in 2023.

Housing: IfW: Sharpest fall in real estate prices in 60 years

According to the Kiel Institute for the World Economy (IfW), prices for residential real estate in Germany fell to a historic extent in 2023. The institute said it was the sharpest decline since systematic real estate price recording began in this country around 60 years ago. This applies to all residential segments - both condominiums and single- and multi-family houses.

Compared to the previous year, prices for condominiums fell by 8.9 percent, for single-family homes by 11.3 percent and for multi-family homes by 20.1 percent, as the German Real Estate Index calculated by IfW and partners shows. It is based on purchase price collections from the appraisal committees, which contain notarized sales prices. Adjusted for inflation, the impairment is around five percentage points higher. Never since the appraisal committees began collecting purchase prices have real estate prices fallen “so quickly,” the researchers wrote.

Previous price collapses lasted much longer

During the strongest price decline to date from the mid-1990s onwards, sales prices fell to a similar extent, but it took around ten years to do so. The recent price decline was preceded by an equally historic real estate boom since around 2009. Since then, depending on the segment, prices have risen three to four times, according to the IfW, before the sudden crash began in 2022 - triggered by a rapid rise in loan interest rates, which made financing significantly more expensive. Many people therefore cannot afford to buy property and investments are no longer worthwhile for large investors.

"In view of the exorbitant price increases over the past 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," said IfW President Moritz Schularick. "It is possible that real estate prices are just starting to bottom out. But this will only become apparent in the coming quarters."

Researchers see stabilization in the fourth quarter

According to the researchers, the real estate market stabilized somewhat in the fourth quarter of 2023. Compared to the previous quarter, prices for condominiums only fell slightly on average by 0.6 percent. Single-family homes fell in price by 1.2 percent. The prices for multi-family houses climbed by 4.7 percent, but the fluctuations were relatively high due to the small number of transactions, the IfW said.

Developments varied in the seven largest cities. In Cologne and Stuttgart, prices fell significantly by 3.6 percent each quarter at the end of the year. In Berlin (-0.4 percent), Frankfurt (-0.2 percent) and Hamburg (0.2 percent), however, they remained roughly stagnant. No data for the fourth quarter was available for Düsseldorf and Munich.

Compared to the same quarter of the previous year, the fourth quarter of 2022, prices in all segments were significantly lower, according to the information. Official data on real estate prices from the Federal Statistical Office for the final quarter of 2023 is not yet available.

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