Interest rate development determines prosperity

The European Central Bank in Frankfurt am Main, ECB, regularly attracts a lot of attention in times of crisis. All of Europe has an interest in its decisions, on which the further development of inflation, interest rates and also the real estate market depends. 

As a rule, the Governing Council meets twice a month. It assesses economic and monetary developments and takes its monetary policy decisions every six weeks. Most recently, the insolvency of Silicon Valley Bank in the U.S. was linked to concerns about a possible new financial crisis. This caused unease ahead of the ECB's interest rate decision in March 2023. The European Central Bank stuck to its original announcement and raised the key interest rate by 50 basis points to 3.5 percent. The takeover of Credit Suisse by Switzerland's UBS is not exactly having a calming effect on the credit market. It is considered certain that further interest rate steps will follow from the ECB and the Fed in the coming months. 

The ECB based its latest decision on the underlying economic situation, which has hardly changed. The central bank justified its decision by saying that the euro area banking sector was resilient and that capital and liquidity positions were solid. However, speculation is already rife about the outcome of the next interest rate decision in May. 

The average best interest rates for mortgage loans showed a slight upward trend until mid-March. The 10-year fixed interest rates rose from 3.25 to 3.49 percent, the 15-year from 3.46 to 3.67 percent. However, the yield on 10-year federal bonds has fallen by around 0.5 percent since the beginning of March.

For the time being, the financing market cannot yet hope for permanently lower interest rates. According to the Bundesbank, the volume of real estate financing continued to decline in January. At the same time, there are increasing signs that the real estate market will move more significantly. According to a Bundesbank study, "apartments in major cities are significantly overpriced." In order for more people to become interested in real estate again, prices would have to drop noticeably. But as long as the demand for housing and the reserves of German citizens are high, price declines in real estate will remain relatively moderate. 

(Photo: © Gerd Altmann, Pixabay)