Real estate markets

Wealth creation through less regulation

As the current German Bundesbank study on “Private Households and Their Finances” reveals, average net assets in Germany rose between 2014 and 2017 by EUR 18,300 to EUR 232,800. However, wealth remains unevenly distributed. The unequal distribution of wealth is more pronounced in Germany than it is in the Eurozone as a whole, but is less so than in the United States. It is interesting that above all citizens with real estate and share investments benefited from value increases. In the international comparison though, precisely these asset categories have a weak weighting: German investors are regarded as risk-averse because they avoid equities and tend to favour investments in the form of bank deposits and insurances. Moreover, German citizens more frequently rent their homes rather than own them outright. In this context, both asset categories are especially important for wealth creation: Equities, funds and the corresponding certificates contribute to the broad…

Rise in property prices in some countries has slowed

House prices continued to increase in the international property markets last year. The housing price index we compute for 20 countries also shows, however, that the price momentum has eased despite the widespread low interest rate level. That said, this does not constitute a general trend but points to developments running more in opposite directions. While the housing markets in some countries such as Germany, the Netherlands, and Portugal have really raced ahead, house prices have come under pressure in particular in places where for many years the tendency has been almost consistently upward. In Australia and in Sweden prices actually fell slightly. Given what will probably continue to be low mortgage rates, prices in most of the international property markets look set to rise further. However, the era of especially pronounced price increases seems to be over. Macroprudential instruments make property financing harder, high purchase prices weigh heavily on…

German housing market: Slight decline in building permits in 2018; tighter regulation could worsen the situation

The shortage of housing is a key reason for the sharp rise in real estate prices and rents. This is unlikely to change all that quickly. For the number of building permits even fell minimally last year by 0.2% to 347,300 residential units. At first glance, this does not appear all that serious, given that the number of permits has not even fallen by 1,000 units. Moreover, the decline in permits for residential homes was particularly pronounced. On the other hand, the number of permits for houses and apartments has risen by 3,000 to 332,600 units. Making this more problematic is the fact that the construction of new apartments is trailing behind, with completions grinding to a halt. Last year, around 300,000 units are expected to have been constructed, around 100,000 units less than the estimated annual demand for new construction. With capacities in the construction industry more or less…

Success of online shopping leading to a transformation in the retail sector

Retail is not a strong-growth sector; growth in the sector is achieved almost exclusively through price concessions or by gaining market share to the detriment of competitors. In addition, the trend towards online shopping is leading to major changes in the industry. A significant share of sales growth in the last few years went not to bricks-and-mortar stores, but rather to online shops. More than one in ten euros is now spent online. In addition, not all retail segments have benefited equally from the rise in demand in the last few years. The sales revenues of DIY stores and department stores in real terms are currently well below their level in 2008. The situation hardly looks any better for department stores, even if we include the price trend. In nominal terms, supermarkets have seen the best performance in the last ten years. However, their growth can be largely ascribed to…

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…

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