German house prices expected to fall by 2% in 2024 as supply remains below demand

German house prices expected to fall by 2% in 2024 as supply remains below demand
German house prices expected to fall by 2% in 2024 as supply remains below demand

The supply of affordable housing will remain below demand and German property prices will fall much less this year than in 2023 due to expected lower borrowing costs, according to analysts polled by Reuters.

Hit by the worst housing crisis in decades, average house prices in Germany have fallen almost 13% from peaks in the second quarter of 2022 and fell more than 8% last year, the steepest annual decline since official data was first published in 2000.

The lack of interest from foreign buyers has added to the woes of the ailing property market. In other major real estate markets, notably in the United States, activity and prices remained strong despite high interest rates and a high cost of living.

Average house prices in Germany are expected to fall 2.0% this year, according to the median opinion of 13 real estate experts polled by Reuters May 9-21, down from a 1.7% fall. planned in the February survey.

House prices are then expected to increase by 2.0% and 3.0% in 2025 and 2026, respectively.

This expected recovery is partly explained by forecasts from the European Central Bank, which is expected to cut interest rates next month, earlier than the US Federal Reserve, and then twice more this year.

“The German real estate market reached its lowest level at the end of 2023. With bond yields and mortgage interest rates falling at the end of 2023, demand recovered at the beginning of 2024,” Carsten said Brzeski, global head of macroeconomics at ING.

“As affordability remains low and prices in the construction sector remain high, we do not expect a strong rebound in demand for new housing.”

Highlighting concerns about weak demand, economic institute Ifo recently said a majority of companies in the residential construction sector reported a lack of orders in April, despite an improvement in the country’s business climate. ‘industry.

Meanwhile, the supply of housing, particularly affordable housing, has remained low. Building permits for apartments fell nearly 25% in March from a year earlier.

This situation is unlikely to improve any time soon. Eight of 13 analysts who responded to a supplemental question said the supply of affordable housing will fall well short of demand over the next two to three years. Others believe that supply will be lower than demand.

“Due to the significant number of project cancellations, the total number of completed housing units will fall to 225,000 units in 2024 and only 195,000 units in 2025,” said Sebastian Schnejdar, senior real estate analyst at BayernLB.

“As a result, the overall housing supply will decline. This is even more true for the supply of affordable housing, which will decline even more over the next two to three years.”

A majority of more than 60%, or eight out of 13 people, said the government, which has been striving to meet the target of building 400,000 apartments a year, should become more involved in improving accessibility. The other five said he shouldn’t do it.

“In the absence of government incentives and programs, the lack of affordable housing will instead worsen in the coming years. …. A reduction in bureaucracy and targeted investments could support the construction sector and thus increasing residential real estate construction activity,” added Mr. Brzeski of ING.

“Given that incidental purchasing costs are quite high, direct subsidies could help improve affordability.

(For more articles from Reuters Quarterly Housing Market Polls:)



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