Will rising interest rates stop the recovery in German house prices?

Real estate prices are rising ...

Residential property prices in Germany have been rising for 20 months. According to data from Europace—which closely matches the official figures from the Federal Statistical Office—this trend applies to both existing properties and new builds. The latter have recently become somewhat cheaper, but this is probably due to a seasonal effect. In the last two years, prices have also fallen in the summer and then risen again in the fall. This is also to be expected for the coming months.

... the real estate market is also recovering

Another factor pointing to further price increases is that sales in the residential real estate market have now largely recovered from their slump in 2022. At the very least, the number of new mortgage contracts – which we use to approximate real estate transactions – has been on an upward trend until recently. Admittedly, this trend has been significantly more volatile than usual in the last two months. However, taken together, these two months show that the recovery of the residential real estate market has continued.

In our analyses, we have always emphasized that the occasionally very low sales figures are an indication that the price expectations of sellers and buyers are often far apart, and that a further downward correction is therefore possible. The fact that the number of new mortgage contracts is now close to its pre-crisis level again indicates that price expectations have largely converged, greatly reducing the risk of another significant correction.

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