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German house prices fell 6.8% in the first quarter of this year, hitting a record high, as higher borrowing costs, inflation and weak economic growth weighed on Europe’s largest housing market.
The year-on-year drop in Germany’s residential real estate price index was the steepest since records began in 2000, Germany’s Federal Statistical Office said on Friday.
Falling house prices are the latest sign of trouble in Germany’s housing market, where construction is also slowing. Only 21,200 condos were approved for construction in April, down 31.9% from a year earlier. It was the biggest drop since March 2007.
There were signs, however, that the decline in home prices was slowing, with prices falling 3.1% quarter-on-quarter, less than the 4.9% drop in the third and fourth quarters.
“Falling demand due to higher financing costs and persistently high inflation are likely to remain the main reasons for the decline in purchase prices,” the statistics agency said.
“The German property market has shifted from a seller’s market to a buyer’s market, with transactions almost at a standstill,” said Carsten Brzeski, an economist at ING in Frankfurt. “The official price index is almost fictional because it is based on so few new transactions.”
Franz-Bernd Grosse-Wilde, chief executive of the Ruhr housing association Spar- und Bauverein eG Dortmund, said that uncertainty over new regulations, such as measures to increase energy efficiency in homes, made ” Real estate investment loses its appeal”.
“People who might have considered investing in property five years ago are now becoming unsure because they don’t know what refurbishment obligations they will soon face,” he said.
The ONS said prices fell in both urban and rural areas in the first quarter, but the decline was larger in urban areas. The biggest falls were in Germany’s seven largest cities – Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf – where prices for single- and two-family homes fell by 10.4 percent, while apartment prices fell 6.4%.
Prices in sparsely populated rural areas also fell: 7.8 per cent for single and two-family homes and 5.3 per cent for freehold apartments.
Experts say figures show that many Germans can no longer afford a house or apartment, leading to fewer real estate transactions. Mortgage demand has been declining since May 2022, but recovered slightly in March.
The best rate for a new 10-year mortgage worth €190,000 on a property worth €352,000 has risen to 3.39% from 0.43% at the start of 2021, according to German mortgage broker Dr Klein.
Monthly payments on a typical 10-year mortgage in Germany of 300,000 euros, or 80 percent of the property, reached 1,505 euros in May, more than 300 euros more than a year earlier, the broker said.