Germany: Property prices have not fallen to this extent in 60 years
According to a study published by FAZ, German residential property prices fell more dramatically in 2023 than they have done in the last 60 years. Prices for condominium apartments fell by 8.9 percent, single-family houses by 11.3 percent and multi-family houses by 20.1 percent, the Kiel Institute for World Economics (IfW) announced on Thursday ) . Net of inflation – i.e. measured in terms of current purchasing power – the reduction in value is even more significant: it is approximately five percentage points higher.
“T he speed and extent of the current decline in real estate prices in Germany are historically unique ,” it reads. “Since appraisal boards began tracking purchase prices in the 1960s, real estate prices had fallen so rapidly.” However, the most recent price drop was preceded by a historically unique price rally that began around 2009. Since then prices have increased three to four times, depending on the segment, before the sudden drop in 2022.
The uniqueness of the situation is clearly visible from this graph which shows how this situation actually never occurred
We have rarely witnessed a decline of this size and we are talking about an epochal change over the last 60 years. This suggests a profound evolution of the entire economic system and sectors hitherto considered unassailable, such as construction and credit, truly risk suffering a debacle. The ESM to protect the credit system truly becomes a necessity for Berlin.
Adequate price correction phase
“Considering the exorbitant price increases for over a decade and the new interest rate environment, a price correction phase is certainly appropriate and, even to the extent it has been so far, is not worrisome for the overall economy” , said IfW President Moritz Schularick. In the fourth quarter of 2023, the rate of price decline slowed. Compared to the previous quarter, the prices of privately owned homes fell only slightly by 0.6%, those of single-family homes by 1.2%. Multi-family houses even increased by 4.7%, but in this case the fluctuations are relatively high due to the low number of transactions.
According to information, the sales prices of owner-occupied apartments in the 7 main German metropolises (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, Stuttgart) show a very heterogeneous development. In Cologne and Stuttgart prices fell quite significantly by 3.6% each quarter compared to the previous quarter. In Berlin (-0.4%), Frankfurt (-0.2%) and Hamburg (+0.2%) moved more sideways.
The study is based on the German real estate index (Greix), a joint project of the expert committees for real estate values, ECONtribute and IfW. The purchase price collections of the appraisal commissions, which contain authenticated sales prices, are evaluated.
The problem is, obviously, for those who purchased houses at very high values, say after 2020, and therefore now find themselves with an overvalued house, purchased with debt. If he is unable to pay, the houses will be put on the market at a price that is no longer adequate, and someone will have to pay for the losses. At the same time, banks are full of mortgages whose guarantees are no longer adequate.
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The article Germany: the drop in property prices to this extent has not been seen in 60 years comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/germania-il-calo-del-prezzo-degli-immobili-in-questa-misura-non-si-e-visto-in-60-anni/ on Thu, 08 Feb 2024 09:00:07 +0000.