Some analysts say the German housing market has performed very well over the last few decades, but faces a severe price correction in the coming years.
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Analysts say Germany’s housing market has been very strong for decades, but prices could fall significantly over the next few years.
Mortgage rates have soared, with 10-year fixed rates rising from 1% to 3.9% year-to-date. interhype datawhich usually causes demand to cool as fewer people can afford to take out loans.
House prices have already fallen about 5% since March, according to Deutsche Bank data, with a total decline of 20% to 25% from peak to trough, said Jochen Mobert, a macroeconomic analyst at the German bank. I am predicting.
“With mortgage rates of 3.5% or 4%, investors need higher rental yields, and given that rents are relatively fixed, it is unlikely that prices will have to fall. It’s clear,” says Jochen.
Rental income is a priority for German investors, with around 5 million people earning rental income in Germany, the second lowest share of homeowners among OECD countries, according to the Cologne Institute for Economic Research. is. According to the Fed.
Deutsche Bank doesn’t have concrete data on when it will hit bottom, but Jochen said he wouldn’t be surprised if it were in the next six months.
“If we look month by month, we have already seen the steepest price declines. This was in June and July…August, September and October price declines are already below 1%…investment perspective of the house.”
Holger Schmieding, chief economist at Berenberg, expects home prices to fall “at least 5%, if not more” next year.
“The housing market has softened a lot,” he said, citing a sharp drop in loan demand and a decline in home construction.
Although the words used may vary, many analysts are predicting a drop in the German housing market.
“We would have expected prices to rise further if there had not been an energy crisis or recession. told CNBC.
A recent UBS report put two German cities – Frankfurt and Munich – in the top four. 2022 Global Real Estate Bubble Indexas a place with “prominent bubble characteristics”.
UBS defines the nature of a “bubble” as imbalances in the local economy, including excessive lending and construction activity, where house prices are decoupled from local income and rents.
But that definition doesn’t apply to the German real estate market as a whole, UBS real estate strategist Thomas Veraguth told CNBC.
The situation in Germany “wouldn’t be a typical bubble burst like we experienced in the financial crisis…rather, it would be a correction,” Veragus said.
“In effect, a bursting bubble would be a drop of more than 15% in prices, and that would be a very bad scenario, a very strong and risky scenario that is not the base case at the moment,” he said. added.
Reuters poll on real estate market Experts predicted German house prices last month It will drop 3.5% next year.
A “vulnerable” market
However, not all financial institutions agree that the value of the German real estate market will fall significantly.
“we Residential real estate price gains are slowing But the whole dynamic hasn’t reversed,” Federal Bank Deputy Governor Claudia Buch said in an interview with CNBC’s Joumanna Bercetche last month.
“Overall, house prices are still rising, albeit at a slower pace,” Buch said. “That said, there is no sign of a significant decline in property prices or a receding of overvaluation.”
The Fed will continue to monitor the housing market closely because it is “vulnerable,” Buch said.
Analysts at S&P Global have also dismissed the idea that the market is in a “deep recession.” In fact, the financial analysis firm says the outlook is stronger than the latest forecast released in July.
“We are likely to have to revise our price forecast for Germany this year,” Sylvain Breuer, chief EMEA economist at S&P Global Ratings, told CNBC.
“We still have very strong demand,” he said.
Broyer also said changes in financial conditions and fiscal tightening are gradual and will take time to affect housing demand.
“More than 80% of German mortgages are financed at fixed interest rates, which locks in many households. [in] “Until very recently, we’ve had very favorable funding conditions for five to 10 years.”
The German Pfandbrief Bankers Association (VDP) uses information from over 700 banks to its real estate price indexand the latest quarterly data show that prices increased by 6.1% compared to the previous quarter.
According to VDP CEO Jens Tolckmitt, German property prices are already expected to peak “for the foreseeable future,” but the market fundamentals are still performing well. .
Turkmit said housing shortages, rising rental prices and a strong labor market will continue to support the market, and even if house prices were to fall, it wouldn’t necessarily be a bad thing.
“If house prices drop by 20%, which we don’t expect at the moment, we will be at the price level of 2020. Is this a problem?
“That was the price level we reached after 10 years of price increases,” he added.
Labor market is key
Labor market movements will determine how the real estate market will change, according to some analysts.
“If the labor market shows resilience to the technological downturn that will end the year and into next year, that will be very positive for the housing market,” Breuer said.
Schmieding made a similar comment, but from a longer-term perspective, the medium- to long-term outlook for the German property market “will be good as long as the German labor market is booming.” said.
employment in Germany Record high 75.8%,However, Countries most likely to experience a ‘mild recession’ In the coming months, that number could be affected.
Germany’s GDP figures released last month raised hopes for a slower-than-expected recession with slightly better-than-expected economic growth in the third quarter.
According to the Federal Statistical Office, the German economy grew by 0.4% compared to the second quarter and 1.3% year-on-year.