Real estate markets

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…

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…

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