Despite Recent Prices Hikes, Homeownership Remains Affordable
The findings of the latest price index published by the IVD German Real Estate Federation suggests that the upward trend in residential real estate prices, which started in 2010, continued throughout 2016. Prices for existing condominiums of medium amenity, for instance, experienced a one-year growth by over six percent nationwide. The year before, prices had gone up by barely five percent. Despite the trend, homeownership remains more than just an attractive investment option. Indeed, the affordability of homeownership has lately reached its highest level on record, as the IVD's Affordability Index suggests.
Condominium Prices in German Cities Show Above-Average Growth
An index drilldown reveals above-average price hikes for existing flats in major cities of more than 500,000 residents. Here, prices for existing condominiums of medium amenity registered an average price growth by over nine percent year on year. This is up from 7.5 percent as recently as 2015. But even the steep price increases in the medium-amenity segment of existing condominiums were topped by the price trend in the high amenity segment. Prices in this category rose by 11.6 percent on average in German metropolises, up from just over six percent the previous year.
But the decidedly dynamic growth of condominium prices is certainly not limited to German metropolises. Prices also rallied in cities with populations between 250,000 and 500,000 in 2016. Existing medium-amenity condominiums in these cities cost roughly 8.6 percent more than they had in 2015, when the one-year growth rate had been just 5.5 percent. This means that the price growth for existing condominiums picked up momentum in virtually all German cities in the course of the year. The IVD Federal Investment and Asset Management Association blames it on the sustained keen demand for housing which continues to go unmet despite the stepped-up construction activity. Another factor driving up the demand pressure is the extremely low level of interest rates, according to the IVD. In the association's opinion, condominiums thus remain an attractive investment alternative.
Affordability of Homeownership Reaches Historic Peak Level
But despite the price growth in 2016, which in many cases exceeded the average, the number of Germans who are able to afford homeownership went up as well. This is the upshot of the latest IVD Affordability Index. Factors that enter into the compilation of the index in order to determine the financial capacity of an average household to acquire a home include real estate prices, wages and the interest level. With a score of 143, the index reached its highest level on record in 2016. Just ten years ago, it was below 100 points. The current peak level must be seen in context with the historically low level of interest rates, which makes building loans, among other things, highly affordable, and against the background of the comparatively fast increase in income levels.