German house prices fall in Q4 2022, signaling the end of the boom
Germany’s Federal Statistical Office (StBA) announced on Friday that housing costs in the country saw their biggest single-quarter drop in 16 years in the last quarter of 2022.
The reasons cited for the surprising turnaround were rising inflation, as well as rising interest rates adopted by banks to combat it.
Experts say they expect the trend to continue into 2023.
The announcement was accompanied by data showing that both homes and apartments in cities and rural areas fell by an average of 3.6%. The last comparable decline was recorded in the first quarter of 2007, when they fell by 3.8%.
Until the fall of the fourth quarter of 2022, German house prices were at an all-time high since 2010.
In a statement, the StBA said the drop in prices could be attributed to a corresponding decline in demand as a result of rising finance costs and continued inflation.
Overall, single-family and duplex home prices in cities are down 5.9% compared to the fourth quarter of 2021. Apartment prices are down an average of 1%. House prices in rural areas fell by 5.5%.
Prices in Germany’s seven most populous cities – Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf – also fell for houses (2.9%) and apartments (1.6%).
Higher interest rates dim construction prospects
Recent increases in interest rates have also soured investor enthusiasm, as well as pushing individual investors away from the property market. Observers say the slowdown is likely to continue into the year, with the German Institute for Economic Research (DIW), for example, saying a 10% drop in prices could be possible.
According to the Bundesbank of Germany, housing prices in cities at the end of 2022 were overvalued by between 20-45%. So despite the “healthy development” announced on Friday, experts say there is little danger of a housing meltdown.
This has to do with the housing shortage in the country, where demand far exceeds supply. The lull in new construction will help keep prices in place, experts say.
Economist Martin Güth of Baden-Württemberg State Bank (LBBW) said the fall in the fourth quarter “should come as no surprise to anyone, but the pace is striking”.
Despite Friday’s announcement, overall house prices in 2022 rose 5.3% after an 11.5% jump in 2021, the biggest single-year rise since 2000.
In light of the shortage of affordable housing and a large influx of migrants – most recently refugees from Ukraine – the German federal government had previously announced a target of building 400,000 new apartments annually. However, that target has remained elusive, with the Association of German Builders (ZDB) estimating that just 245,000 units will be completed this year.
Source: DW
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