German real estate prices fell a record amount in the second quarter of this year — the sharpest fall since statistics began in 2003. Rising inflation, high interest rates, and a lack of interest from buyers are driving the trend.
The data from the Federal Statistical Office shows that prices fell 9.9 percent year-over-year from April to June. However, this only left prices 1.5 percent cheaper than the first quarter of 2023, with prices still extremely elevated from pre-Covid times.
Cities saw a sharper fall in prices than rural areas, with larger price drops in the top seven cities: Berlin, Munich, Cologne, Hamburg, Stuttgart, Frankfurt am Main and Düsseldorf. The average price of a single-family home fell 12.6 percent compared to the second quarter of 2022, while that for an apartment dropped 9.8 percent.
“The declines were smallest in the sparsely populated rural districts,” said the statistics office. In rural areas, prices fell 7 percent compared to the same quarter last year while single-family homes were 8.1 percent cheaper.
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DZ Bank released a study indicating that prices will only fall between 4 and 6 percent for the year as a whole, but that this is not actually all that much given the difficult situation facing the German real estate market.
“Measured against the significantly worse financing conditions and the uncertainty about future investments in energy renovation and new heating technology, the price decline appears to be moderate, in the single-digit percentage range,” reads the study.
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The current left-wing government has promised unprecedented building to fuel demand from Germans for their own homes and apartments, with rising prices, including in the rental market, putting tremendous pressure on households.
However, many construction projects are either being paused or completely abandoned, with many developers going bankrupt.
“Continuing rising interest rates and ever-higher construction costs result in a toxic mixture,” explained Central Real Estate Committee (ZIA) President Andreas Mattner. “The state itself — federal, state and local authorities — must finally respond to this dramatic situation with the necessary rigor.”