Affordability: Better times for property buyers

The property market has turned around within a few months. Property prices are stagnating or falling, while affordability has increased. Although higher interest rates have to be factored into the financing when buying, the conditions for buying real estate are nowhere near as bad as they are being discussed - on the contrary, they are getting better.

The big hype about real estate may be over, but the situation is much better than many think - at least for prospective buyers. A property is a long-term investment in the future. A look back shows that the affordability of real estate was significantly worse in the past than it is today.

Property affordability refers to the ability of people to afford to buy a property. It is a measure of the relationship between the cost of purchasing a property and a household's disposable income. In order to assess the affordability of real estate, the factors of income, interest rates and real estate prices must be related to each other.

Real estate was strongly undervalued from the turn of the millennium until around 2008. The enormous price increases from 2011 until mid-2022 were merely a catch-up movement. Incomes also rose sharply during this period. It should also be borne in mind that interest rates in the 1980s and 1990s were about twice as high as they are today. The Handelsblatt interprets this as follows: "Adjusted for inflation, real estate has only become 15.5 percent more expensive since 1980. Measured against the increased purchasing power, they are even significantly cheaper today".

For property buyers, affordability is a decisive factor. Experts expect a significant increase in transactions at the end of this year and the beginning of next year. Many financings that were concluded cheaply about five to ten years ago are about to expire. Since follow-up financing is expensive, more properties will come on the market and put further pressure on property prices.

Conclusion: Times are getting better and better for real estate buyers. On the other hand, anyone who wants to sell a property should no longer hesitate for too long.

(Photo: © Glavo, Pixabay)