Market study: property prices and building interest rates are falling

Prices for residential properties on the German property market will continue to fall in the current year, but only by around five percent, according to LBBW Research. At the same time, the experts expect construction interest rates to fall further - the market is calming down.

Financing experts are still often expressing their hopes with "could, would, might, should". However, the mood on the property market is springtime. The European Central Bank (ECB) has not yet lowered its key interest rates in January. However, LBBW Research assumes that the ECB will make its first interest rate cut in June. Continuity is expected for ten-year interest rates in 2024, albeit with some fluctuations. And further: "Lower interest rates could lead to more favourable loans for builders and buyers, which in turn could lead to more investment in the property market. This would help to counteract a possible fall in prices - a development that many players in the property market are hoping for this year."

Residential property prices are continuing to fall - but the bottom is in sight: LBBW Research expects prices to fall only moderately by around five per cent. The reasons for this are the fall in mortgage interest rates and bond yields since October last year, which have significantly eased the pressure on the residential property market. Added to this is the ongoing housing shortage and the stagnation in new construction.

"At the same time, however, there is no need to rush, as the interest rate level should lead to a permanently lower valuation level for residential property," says Martin Güth. "Mortgage interest rates will be around 3.5 per cent at the end of 2024 and thus at a similarly low level as at the beginning of 2023. This will also reduce the downward pressure."

Since peaking in the second quarter of 2022, residential property prices in Germany have fallen by an average of 10.9 per cent (Destatis). However, this does not apply equally to all buildings. The prices of new builds are significantly more stable than those of existing buildings. The main reason for this is the high level of investment in energy efficiency required for older buildings. The index value for apartment buildings in large cities fell to its lowest level in five years in the third quarter. Compared to the peak in the second quarter of 2022, this represents a price decline of 27 per cent.

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