House prices in Germany will fall in 2023 but rents will continue to rise

BENGALURU (Reuters) – House prices in Germany will fall by more than 5% this year and stagnate in 2024, according to property analysts polled by Reuters who said rents will become less expensive as more potential buyers shun an expensive market.

Housing in Europe’s largest economy, which used to rise in prices only gradually but has quickly become more expensive in recent years as a result of cheap borrowing costs, is now going through its biggest crisis in decades.

Building permits for apartments fell by 27% during the first half of 2023, and a series of real estate development companies filed for bankruptcy.

With average home prices rising 25% during the COVID-19 pandemic, rising interest rates and rising costs of living in a struggling economy have pushed many to rent while anticipating lower home prices.

The median opinion from an Aug. 14-30 Reuters poll of 14 real estate experts expects average home prices to fall 5.6% overall over the course of 2023, roughly matching the results of a poll conducted three months earlier. .

All but one expect prices to fall this year. Forecasts were in the range of a decline of 12.0% to a rise of 2.3%.

Home prices are expected to stagnate next year, an improvement compared to the 2.0% decline that was expected three months ago.

“We do not expect to see a significant recovery in the German real estate market any time soon,” said Carsten Brzeski, global head of macro research at ING, adding that the expected moderate correction followed by an uptrend next year “will lead to overall affordability growth.” still low.”

Median home prices fell by 6.8% in the first quarter compared to the previous year, the largest decline since official data was first published more than two decades ago.

“While borrowing rates are likely to be lower next year than this year, they will by no means be at similarly low levels as they were during the ECB’s zero interest rate policy period,” Brzeski said.

The European Central Bank will raise interest rates again this year, taking its deposit rate to 4.00%, according to a narrow majority of economists polled separately by Reuters, and no cut is expected until the second quarter of next year.

This comes after many years of negative interest rates that were close to zero in the wake of the global financial crisis and during the pandemic.

Analysts who answered an additional question were evenly divided on whether affordability for first-time homebuyers will improve or worsen over the next year.

Red Hot Rentals is here to stay

With affordability not expected to improve significantly despite expectations of lower house prices, pressure on rental markets is likely to increase.

All 13 strategists who answered an additional question said that already high average rents would rise significantly or slightly over the remainder of 2023.

11 out of 14 respondents said rent affordability will get worse over the next year. Three said it will get better.

“There is currently strong upward pressure on rents… A large proportion of potential buyers who can no longer afford to purchase properties due to high interest rates are now increasingly asking to rent apartments,” said Sebastian Schneider, senior real estate analyst at Bayern LP. .

“Because of the lack of new construction, housing for rent and sale will remain a scarce commodity.”

(For other stories from Reuters’ quarterly housing market surveys:)

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