Mortgage rates have soared, with a 10-year fixed rate up from 1% to 3.9% since the start of the year, according to Interhyp data, which typically causes demand to cool as fewer people can afford to take out loans.
House prices have already declined around 5% since March, according to Deutsche Bank data, and they will drop between 20% and 25% in total from peak to trough, forecasts Jochen Moebert, a macroeconomic analyst at the German lender.
“If you think about mortgage rates of 3.5% or 4% then you need higher rental yields for investors and given that rents are relatively fixed, it’s clear prices have to fall,” Moebert said.
Rental income is a priority for German investors, with approximately 5 million people in Germany receiving revenue from renting, according to The Cologne Institute for Economic Research, and the country having the second-lowest share of homeowners of all the OECD countries, according to the Bundesbank.
While Deutsche Bank doesn’t have specific data for when the bottom will be reached, Moebert said he wouldn’t be surprised if it was over the next six months.
Holger Schmieding, chief economist at Berenberg, anticipates a house price decline of “at least 5% if not a bit more” in the next year.
“The housing market is softening significantly,” he said, citing a strong decrease in demand for loans and a drop in housing construction.
A recent UBS report went as far as to place two German cities — Frankfurt and Munich — in the top four of its Global Real Estate Bubble Index for 2022, as locations with “pronounced bubble characteristics.”
(Source: CNBC)
