German house prices fall by record 6.8% as higher mortgage costs deter buyers

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German house prices fell at a record rate of 6.8 per cent in the first quarter of this year, as higher borrowing costs, inflation and weaker economic growth took their toll on Europe’s largest property market.

The year-on-year fall in the index of German residential property prices was the biggest since records began in 2000, the federal statistical office said on Friday.

Falling house prices are the latest sign of trouble in the German residential housing market, where housebuilding is also slowing. Just 21,200 flats were approved for construction in April, 31.9 per cent less than a year before. That was the biggest decline since March 2007.

However, there were signs the downturn in house prices was slowing, as prices fell 3.1 per cent from the previous quarter, a smaller decline than the 4.9 per cent drop between the third and fourth quarters.

“Lower demand due to higher financing costs and the persistently high inflation are probably still the main reasons for the decline in purchasing prices,” the statistical agency said.

“The German housing market has gone from being a seller’s market to a buyer’s market, and transactions have almost come to a standstill,” said Carsten Brzeski, a Frankfurt-based economist at Dutch bank ING. “The official price index is almost a fiction because it is based on so few new transactions.”

Franz-Bernd Grosse-Wilde, chief executive of Spar- und Bauverein eG Dortmund, a housing association in the Ruhr city, said uncertainty over new regulations such as measures to improve the energy efficiency of homes had made “investments in real estate unattractive”.

“People who might have thought about investing in property five years ago are now uncertain because they don’t know what refurbishment obligations they’ll soon be facing,” he said.

The statistical office said prices fell in the first quarter in both cities and rural areas, although they had dropped more sharply in urban areas. The biggest declines were in Germany’s seven biggest cities — Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf — where prices for single- and two-family houses were down 10.4 per cent and those for flats fell 6.4 per cent.

Prices also fell in sparsely populated rural areas: those for single- and two-family houses dropped 7.8 per cent and those for freehold flats declined 5.3 per cent.

Experts said the data shows that many Germans can no longer afford to buy a house or flat, leading to fewer real estate transactions. Demand for mortgages has been in decline since May 2022, though there was a slight recovery in March.

The best rate for a new 10-year mortgage worth €190,000 on a property worth €352,000 has risen from 0.43 per cent at the start of 2021 to 3.39 per cent, according to Dr Klein, a German mortgage broker.

Monthly repayments on a typical German 10-year mortgage of €300,000, worth 80 per cent of a property, reached €1,505 in May, an increase of more than €300 from a year earlier, the broker said.