Falling real estate prices, but sharply increased interest rates – the road to property remains rocky for buyers. At least: According to experts, you can hope for prices to fall somewhat.
Given the lack of housing and high levels of immigration, experts expect a noticeable increase in rents in Germany in 2024. Real estate prices, on the other hand, are likely to go down a bit – there is particularly great pressure on prices for properties with poor energy performance, also due to uncertainty surrounding the heating law. However, with falling key interest rates in the new year, the price correction on the real estate market could end.
“For 2024, we expect continued high political uncertainty and see little scope for stimulus in new residential construction,” said Roman Heidrich, expert in residential property valuations at major broker Jones Lang LaSalle (JLL). Excess demand will worsen, particularly on the rental market.
More tenants than owners
In the third quarter, rents in the eight largest cities in this country rose by 8.4 percent compared to the same period last year, show new data from JLL for the German Press Agency. There was an increase of 3.8 percent in the second quarter. Rents also rose sharply year-on-year in other major cities – for example in Mannheim (5.7 percent), Bonn (4.8), Essen (5.2) and Wuppertal (5.7).
The increases were higher than in the rest of urban areas and in village areas – there rents grew by a good four percent year-on-year and less than two percent compared to the previous quarter. “We assume that rents will continue to rise in the medium and long term, as demand in most regions of Germany will continue to significantly exceed the shrinking supply of new apartments in the next few years,” said Heidrich.
Because of the increased interest rates and high construction costs, many people are switching to rental apartments – the fall in purchase prices does not compensate for more expensive loan installments. Germany is already the only EU country with more tenants than owners; according to the statistics authority Eurostat, the ownership rate was 47 percent in 2022. The record high immigration in 2022 has increased demand for housing even further.
Financiers: Real estate crisis not over
While rental apartments are hotly contested, property buyers can still hope for discounts in 2024. The significantly increased interest rates are probably not yet fully reflected in the prices for private residential property, said JLL expert Heidrich. And from the perspective of the Association of German Pfandbrief Banks, the peak of the real estate crisis will not come until next year. The association, which represents the most important real estate financiers, believes that further price declines can be expected in the coming quarters.
Real estate prices have been falling since mid-2022, the peak of the real estate boom. According to the Federal Statistical Office, in the third quarter of 2023 there was a decline of a good ten percent compared to the same period last year. However, prices had also roughly doubled during the boom since 2010. And in the opinion of the Bundesbank, the level was far too high: residential properties were overvalued by an average of 20 to 30 percent in 2022.
Now houses with high energy consumption are particularly under pressure. For residential properties with the worst energy efficiency class H, you had to pay an average of 14 percent less this year than in 2022, writes the direct bank ING. For properties with the best energy efficiency class A+, the price decline was only 1 percent. “Whereas the location used to be the decisive criterion for the offer price, today a good energy label is the ace up the sleeve.”
JLL also observes a large price gap. In the third quarter, houses in the two lowest efficiency classes G and H were 28.7 percent cheaper than buildings in the best classes A and A+. “Owners of properties with poor energy efficiency will have increasing difficulties in renting, selling and financing their properties in the future,” said JLL expert Heidrich.
Will prices end when interest rates fall?
An important adjustment screw could change in the new year: interest rates. If the sharp rise in interest rates as a result of the Ukraine war and inflation has stalled the long real estate boom, a turnaround in interest rates could stabilize the market. Even if the European Central Bank (ECB) is keeping a low profile: With inflation falling, economists expect the ECB to cut key interest rates in the first half of 2024.
The Landesbank Helaba writes that residential property prices are likely to stabilize in 2024. “The affordability of home ownership will improve somewhat due to falling house prices, rising real wages and lower financing interest rates.”
DZ Bank expects the correction in the real estate market to slow down in 2024 and end as interest rates fall. On average over the year, prices are likely to fall by 0.5 to 2.5 percent. The peak in financing costs has probably been passed.
In anticipation of a looser monetary policy, building interest rates have already fallen sharply. According to FMH financial advice, around 3.5 percent per year was due for ten-year loans shortly before Christmas – at the end of October it was 4.25 percent. “Banks are pricing in possible interest rate cuts by central banks in the coming year,” says Ingo Foitzik, managing director of construction financing at the comparison portal Check24.
Thanks to recently reduced loan interest rates, buyers saved five-figure amounts, estimates Tomas Peeters, head of Baufi24 Baufinanz AG. “The prospects for buying real estate have brightened significantly for 2024.”
Source: Stern
