In recent years, the housing market in the two metropolises has been hot. Now the situation has normalized, says the Swiss bank UBS. This offers opportunities for property buyers.
The once great risk of a real estate bubble in Frankfurt and Munich has fallen significantly with the decline in house prices. This is the assessment of the major Swiss bank UBS. While the housing markets in the two cities were still heavily overvalued in 2022, there are now opportunities for buyers. However, the price level is still relatively high, according to a study.
For its “Global Real Estate Bubble Index”, UBS has been analyzing residential property prices in 25 major cities around the world for years. It sees an acute risk of a real estate bubble in Miami, Tokyo and Zurich. Frankfurt (11th place) and Munich (17th) are in the moderate range. At the bottom of the ranking are Warsaw, Milan and São Paulo.
Real estate markets in Frankfurt and Munich are cooling down
According to UBS, Frankfurt and Munich were among the metropolises with the greatest risk of a real estate bubble worldwide in 2022. Since then, purchase prices in both cities have fallen significantly due to rising loan interest rates; according to UBS, they are around a fifth below their peak when adjusted for inflation. “Rising rents and incomes in the past two years, with some property prices significantly lower, have increased the attractiveness of residential real estate for investors and potential homeowners,” said Maximilian Kunkel, chief investment strategist at UBS in Germany.
Despite the recent correction, real estate is not cheap, says the bank. Prices in Frankfurt have still increased by 90 percent within ten years.
Price increases expected – but no new boom
Property prices in Munich and Frankfurt are likely to have reached a bottom soon and are rising again, they say. Interest rate cuts by the European Central Bank and the lack of housing are supporting the property market. “In Munich, demand seems to be picking up again, partly due to the more solid population growth.” In Frankfurt, however, the population is growing little. A new property boom is unlikely, however, also due to the weak economy in Germany.
For the study, UBS compares purchase prices and rents with the development of income and economic performance – and looks to see if there are any noticeable deviations. Household debt and construction developments are also taken into account. Excesses here have often been an alarm signal for real estate bubbles, for example in the USA and Spain.
Source: Stern
