This spring, many people are in a hurry to buy their own home. They are obviously driven by the concern that it could become even more expensive.
Inflation and rising interest rates fuel the search for houses and apartments in Germany. Both the Landesbausparkassen and the financing broker Interhyp have reported a strong increase in demand since the beginning of the year – obviously driven by concerns that real estate and interest costs could become even more expensive.
According to the financial sector and the Munich Ifo Institute, it would be even more difficult for prospective buyers who are less well-equipped to buy their own home or apartment because of the double burden of rising interest rates and construction costs.
In the first four months of this year, Landesbausparkasse Bayern committed around 890 million euros in loans. “That’s over 70 percent more than in the same period last year,” reports a spokesman in Munich. The development at the sister institute in North Rhine-Westphalia is similar: LBS West – which also looks after Bremen in addition to NRW – reports an increase of 50 percent. In addition to new buyers, these include many customers who want to take out follow-up financing or modernize their homes.
“The number of inquiries and transactions in 2022 has so far been significantly higher than in the last few months of last year,” says Mirjam Mohr, board member at the financing broker Interhyp. The Munich company attributes this primarily to the sharp rise in interest rates. “Many of our customers are worried: They see rising interest rates and feel pressure to secure cheap interest rates quickly,” says Mohr.
The situation at Postbank Immobilien is different
At Postbank Immobilien, the situation is somewhat different: Customers were somewhat more cautious when buying and building new properties, “due to the sharp rise in interest rates,” says a spokeswoman. However, Postbank is also reporting great interest in follow-up financing, sometimes well in advance.
The extremely low interest rates over the years have made steadily rising real estate prices more bearable for many buyers. Those times seem over. “There are signs of a turnaround in interest rates,” says economist Ludwig Dorffmeister, a specialist in construction and real estate at the Munich Ifo Institute. “People who could only afford to buy real estate in recent years because of the extremely low interest rates are now falling out of the market.”
According to Interhyp figures, interest rates for ten-year loans have risen from 1 to 2.6 percent at the beginning of this month since the beginning of the year – “so they have more than doubled,” says board member Mohr. In the first quarter of 2021 it was still 0.8 percent. “We expect further interest rate increases and consider 3 percent for ten-year loans to be realistic over the course of the year.” The high real estate prices combined with the rise in interest rates are “increasingly a problem for affordability”.
long-term comparison
In a long-term historical comparison, lending rates are still low. Nevertheless, the current increase means considerable additional costs. “Every tenth really hurts,” comments Stephan Kippes, the market researcher at the real estate association IVD Süd in Munich.
The rise in interest rates for ten-year loans from 1 to 2.6 percent means that for a real estate loan of 300,000 euros and an initial repayment of three percent, the monthly rate will increase from 1,000 to 1,400 euros, Interhyp board member Mohr calculates – that would be in ten years 48 000 euros. With a loan amount of EUR 500,000, the additional interest costs would add up to around EUR 80,000 in a decade.
And it’s not just interest rates that are rising. The shortage of materials in the construction industry has worsened since the Corona turbulence, says Ifo expert Dorffmeister. «With an increase in building construction prices of almost 10 percent, the cost pressure was already immense last year. Since March of this year, price growth is likely to have accelerated again.”
No relaxation expected
Relaxation does not seem to be in sight for the time being. “A significant calming down is not to be expected by the summer/autumn, also because the port closures in China will only become noticeable in this country with some delay,” says the scientist.
Could the twin burdens of rising interest rates and rising construction costs result in a real estate crisis? Forecasts are currently extremely difficult, say the experts. Ifo expert Dorffmeister could imagine a “certain damper in multi-family house construction”. “But I don’t share the concern that there could be a real estate crash. In many places there is a substantial demand for living space and credit financing has been largely solid until recently.”
Dorffmeister assumes that real estate ownership will offer “sufficient protection against inflation” in the medium and long term, “if wages are adjusted accordingly,” as the economist says. “So I don’t think that money will be withdrawn massively, but a temporary dampening of the price increase is conceivable.”
IVD-Süd market researcher Kippes analyses: “We have several opposing special effects.” Construction costs, a lack of materials and interest rate developments could have a dampening effect, as could the corona pandemic, which has not yet been overcome. On the other hand, according to old school opinion, inflation, crises and wars encourage people to buy real estate. “Equipment is considered safe,” says Kippes.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
