Real estate market: Is the price collapse now unavoidable?

Due to the enormous financing costs, the interest in buying real estate has decreased massively and the supply has increased strongly. The current economic situation is causing many interested parties to switch from the purchase to the rental market. A decline in prices has already been recorded.

A study by the German Institute for Economic Research (DIW Berlin) examined the development of rents and purchase prices in 97 German cities. According to this study, real estate prices in Germany allegedly continued to rise: homes and condominiums were on average eleven percent more expensive in 2022 than last year. At the same time, rents increased by four percent, which is significantly less. But where does this data come from? Apparently, exaggerated asking prices in the real estate portals are used as a basis; in some regions - such as Berlin - it also seems that rising prices are still being paid. In fact, however, this can only be assessed by the responsible expert committee after all sales contracts from this year have been evaluated. Only then will we have the actual figures - and that will take until spring 2023.

For more and more regions and market segments, speculative exaggerations in advertised prices are therefore becoming apparent. These could soon be corrected, as high inflation and rising interest rates have clouded the financing environment of the real estate market. "Admittedly, we are not on the verge of a huge real estate price bubble bursting in Germany," says Dr. Konstantin Kholodilin of the DIW's Macroeconomics Department. So we will not experience a crisis like in the USA or in Spain during the financial crisis - but price drops of up to ten percent are quite possible.

JLL Germany sees the situation for some segments of the real estate market as much more negative: According to an analysis, buildings with a poor energy balance are being penalised with increasingly higher markdowns in value. The price difference to energy-efficient properties in the first half of 2022 is between twelve and 33 percent on average. In markets with a high supply overhang and a poor negotiating position, the price discount for sellers rises to almost 50 percent. Properties with better energy efficiency react less sensitively to the current supply crisis. The discount for net rents is lower than for purchase prices, averaging 2.5 percentage points.

Overall, however, there is no reason to panic. We can expect that the real estate market in Germany is robust enough to withstand these wild times, provided that prices can be reasonably negotiated for sellers and buyers. Although financing conditions are worsening, an extreme, excessively rampant indebtedness of private households is not to be expected and, given the current conditions on the part of the banks, is not to be expected...

(Photo: © Cocoparisienne, Pixabay)