Ever higher prices for residential real estate, especially in the metropolises: people had already gotten used to that. But experts have been observing a different development for some time. The prices are going down, says someone who knows it firsthand: Thomas Schroeter, head of ImmoScout24, one of the major online real estate portals in Germany. "We can see that prices are actually beginning to fall, particularly in the major cities," says Schroeter. "Berlin is relatively stable, but in Düsseldorf, Hamburg, Cologne, Munich and Stuttgart we see price declines of up to five percent, depending on the metropolis."
Falling real estate prices – even if not everywhere in Germany: That's new. Many in the industry are now talking about a trend reversal, even an end to the boom. And there are several reasons for this, explains real estate analyst Stefan Mitropoulos from Landesbank Hessen-Thüringen. He sees the development of interest rates as probably the biggest challenge for the German housing market at the moment. "We have seen a very strong increase in a very short time. Of course – you have to see that – from a historically low level," said Mitropoulos.
Regulation protects the market from imbalances
Since the beginning of the year, construction interest has more than tripled to currently 3.1 percent for a ten-year loan. The ECB has not yet increased interest rates, but the development on the real estate market has already been anticipated due to high inflation. Many people are now thinking twice about building. Demand is falling because this makes financing considerably more expensive. Added to this are the increased construction costs. This in turn means that the banks are also taking a closer look. They have significantly tightened their lending guidelines for housing construction loans.
Does the real estate market pose a risk again – in view of falling real estate prices and expensive loans? Steffen Sebastian from the chair for real estate financing at the University of Regensburg does not see that yet. "We simply have very good regulation in Germany and now also in Europe, so I'm assuming that both the banks and private real estate financiers can basically cope with a moderate drop in prices without any problems."
Other financing models in the USA
In the US, on the other hand, concerns are greater. There, the interest rate for a 30-year mortgage has already risen to more than five percent – the highest rate in decades. The financing also differs significantly from that in Europe, explains Ralph Henger from the German Economic Institute IW: "There, financing is usually variable. Rising interest rates there mean that someone has to get out – possibly because they can no longer service the loans can."
So there is a much greater risk of loan defaults than in Germany. US building permits are also a cause for concern, declining significantly – as is the number of housing starts, which has fallen to a nine-month low. All of this means that the situation on the US real estate market is much more tense. In Germany, on the other hand, many experts expect a correction in the next few months – but nothing more for the time being.