Real estate markets

German housing market: Record price increases in 2018

Anyone who has bought a house or apartment in recent years can expect to see a respectable growth in the value of their property. According to price data recently published by the Association of German Mortgage Banks (Verband deutscher Pfandbriefbanken), the price of owner-occupied residential property rose by a record 7.7% in 2018 alone (annual average across Germany). After deducting inflation, real value growth pans out at almost 6%. As the situation was pretty much the same in previous years due to the meanwhile low inflation, the cumulative real value growth over five years adds up to more than 20%. If the property is located in one of the seven largest German cities, the nominal price increase in 2018 was even two percentage points higher. However, inflation has appreciably decelerated in the course of the year and was unable to keep up with the nationwide growth pace in the third…

Is the US housing market in danger of crashing?

In 2018, house prices in the United States rose for the seventh consecutive year. However, the upswing recently lost momentum amid stagnating sales figures. The debt ratio of private households has meanwhile fallen noticeably, but still stands at around 100% of income. Moderate loan granting as well as construction activity argue against an imminent fall in prices. Nevertheless, the risk of a sudden slump in demand and renewed rise in debt remains. But let’s take a closer look at the situation on this important real estate market. After all, the volume of mortgages in the USA exceeded the 9 trillion dollar mark again last year, with this last happening in 2008. On a steady upward trajectory, US house prices returned to pre-crisis levels already two years ago and have even exceeded them. Over the course of last year, demand went into decline again for the first time since 2014. This…

German housing market: Prices continue to climb, but for how much longer?

The rise in rents and prices in the housing market continues unabated. Purchase prices for owner-occupied homes have soared by 7.5 percent on the year nation-wide, at a pace that looks set to break records. With the increasing strain on “homes”, the tense situation in the housing market is becoming ever more of a political issue. With rent caps, special write-down schemes, family housing subsidies and the housing summit held in September in the Federal Chancellery, the current government is seeking to improve the situation for tenants and buyers alike. There are scant prospects of success as the property market lacks flats, not regulations or money. Both make the problems greater: The massive swath of existing regulations facing builders and landlords tend to constrain housing construction, while public subsidies simply further stoke prices. Despite calls for it in order to ease the market situation, the expansion in housing construction will…

German banks: Rising risk aversion for property loans

As the current ECB Bank Lending Survey shows, a slender majority of banks in Germany intends in coming months to tighten their guidelines for approving property loans to private households. This is the first time since the European Mortgage Credit Directive was translated into law in Germany in spring 2016 that banks have declared such an intention. Back then the banks were responding with greater caution to the uncertainties resulting from implementing the directive. A key factor behind the current tightening of loan approval standards is the sharp rise in property prices in German conurbations. While there is no sign of a general property price bubble in Germany, in some regions there are increasingly excessive valuations for housing in various cities that give cause for concern. Furthermore, in some regions, mortgages have burgeoned. The current tightening to their loan approval guidelines some banks plan is an appropriate response to this…

Commercial properties in top locations: Offices are scarce and in demand; online retailers making life difficult for high street retailers.

The economic conditions for commercial properties could hardly be better in top locations. The seven largest German cities of Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart are registering growth in employment, population and in most cases also tourism. This is creating brisk demand for office space which is now just as scarce as residential space. In retail, however, demand for space is being adversely affected by online shopping. Hence, investor interest in what is ultimately a very limited number of first-class properties available for sale in this segment remains high. Nevertheless, initial rental yields have come under considerable pressure in response to strong investor interest. Whereas 10 years ago rental yields of around 5 percent were possible, the corresponding rate today is in some cases less than 3 percent. With bond yields falling even faster, the divergence has widened. In 2008, the yield advantage over 10-year German government bonds…

Property prices in Germany – a cause for concern?

It is not exactly news that in recent years prices for houses and flats in Germany have rocketed. This has been driven by short supply, historically low interest rates, and good overall economic conditions. Since the price rise has hardly lost momentum of late, the central bank and the banking supervisory authority are certainly justified in keeping a close watch on things. In particular, the ECB’s still very expansionary monetary policy provides an ideal seedbed for price bubbles for capital goods. Prices have become exaggerated particularly in the prospering business centres. Precisely there, the ongoing influx of new inhabitants contrasts with a short housing supply. In addition, investors, some of them from abroad, like to acquire multi-family dwellings in the prime German locations for their portfolios. The figures recently released by Verband deutscher Pfandbriefbanken (vdp) pointed to an initial, slight deceleration in the price momentum in these large cities. However,…

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