Real estate prices fall despite high inflation


Lerato Khumalo

Everything is getting more expensive – only home ownership is suddenly becoming cheaper. But that is not a good sign. Owning your own property has become unaffordable for many people.

There has been a turnaround in the German real estate market: Contrary to the general trend of high inflation, prices for houses and condominiums fell in the third quarter, according to data from the financing broker Interhyp. According to this, the average price for a financed property including additional costs in the third quarter was 512,000 euros – 23,000 euros or 4.3 percent less than in the second quarter.

According to Interhyp CEO Jörg Utecht, the main reason is that many people can no longer afford a house or apartment because of the increased interest rates. “The key interest rate increases due to high inflation and the expectations for future monetary policy have quadrupled building interest rates,” said Utecht. The analysis is based on the real estate loans brokered through Interhyp from a good 500 banks, building societies and other lenders.

This would break a ten-year price spiral: from the first quarter of 2012 to the first quarter of 2022, the nationwide average price of a residential property had almost doubled from 290,000 euros to 540,000 euros, according to Interhyp. In the second quarter, property prices had already fallen by 0.9 percent, according to Interhyp.

The Bundesbank’s figures also suggest that the rise in interest rates has made real estate unaffordable for many potential buyers. In the first half of the year, there was a brief boom in housing loans to private households. Many buyers wanted to secure low interest rates. March was the record month, with a total of over 32 billion euros. By September, this had halved, with German banks only lending 16 billion euros in housing loans to private buyers.

“There are signs that the market has turned,” says Stephan Kippes, market researcher at the IVD Süd real estate association in Munich. The days when apartments and houses for sale in cities were practically snatched out of the hands of real estate agents are over. “The number of properties on the market has increased significantly,” says Kippes – in some regions it has doubled. “This means that some sellers are willing to negotiate the price.”

According to Kippes, real estate has become significantly cheaper in Stuttgart, for example, and there were also price reductions in Munich. In Hamburg and Berlin, apartments and houses did become somewhat more expensive again in the third quarter, according to Interhyp, but this could be short-lived. “The figures from the first weeks of the fourth quarter in Munich, Hamburg and Berlin show that further downward corrections are likely,” said Utecht.

The reason for the increased supply is not that much more has been built, but that it is taking longer to find buyers. The drop in prices is particularly noticeable because building itself has become rapidly more expensive this year. Bavarian construction companies, for example, have increased their prices by an average of 25 to 30 percent this year, as the state’s construction guilds reported at the beginning of the week.

The situation is particularly difficult for property developers, who are apparently having increasing problems selling their new buildings. Interhyp estimated the price decline for new buildings from property developers in the third quarter at 5.1 percent. The costs of used houses and apartments have therefore only fallen by 2.3 percent.

“The developers have several problems at the same time,” says Kippes. These include rising interest rates, unpredictable price hikes and shortages of building materials as well as a shortage of workers and construction companies. On the other hand, there are the buyers who can no longer pay as much.

The fall in prices will most likely be accompanied by a fall in the number of new buildings. What this will mean for price developments next year is difficult to estimate.