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Further Price Increase Forecast for the Coming Years

For years, there have been speculations that the time of major price hikes on the German housing market would come to an end soon. The debate picked up considerable momentum in early 2017 when Prof. Harald Simons predicted in the Spring Report of the ZIA German Property Federation that prices in the metropolises were about to take a nosedive. Alas, it is not what happened – and in the latest Spring Report, published in February 2019, price drops are no longer discussed, the issue having given way to a critical focus on the intensifying strain on the housing market.1 Other forecasts also believe that the upward price trend will continue.

Deutsche Bank, for one, expects the boom cycle to be sustained through 2022 or even beyond.2 It argues that it will take at least this long before the completions figures will top 350,000 per year and thereby come close to meeting the annual demand. According to Deutsche Bank, this makes it safe to assume that the bottleneck on the housing market will persist for years yet, an assessment supported by the robust figures from labour market and the now-as-then very flat interest rate development.

Steep Hikes Anticipated in the Major Cities

The Immowelt real estate portal, which analysed the prospective price trend in Germany’s 14 largest cities through the end of 2020, also predicted rising property prices.3 In Berlin, for instance, condominium prices are to rise by 13 percent to an average of 4,390 euros per square metre.4 The price growth projected for Munich is even steeper at 15 percent, but double-digit growth rates are also expected for Frankfurt am Main and Hamburg.

For the purposes of its forecast, Immowelt analysed the development of population, consumer price index and construction cost index, and assumed a slightly elevated mortgage loan interest rate of 1,85 percent. Even a rise in interest rates up to two percent would change nothing about the fact that virtually all of the examined cities are facing price increases in the double-digit percentage range.

Second-Tier Cities Catching up

As the Immobilen Zeitung, a trade paper for the German real estate industry, reported, the Homeday estate agency expects further price increases as well. That being said, the company also focuses on major cities of the second tier where Homeday’s data analysis of ten million listings revealed massive price hikes over the past three years. The going rates in Augsburg, Leipzig, Heilbronn and Ludwigsburg, for instance, were said to have climbed by more than 40 percent.

Analogously, the Immowelt portal recently studied the selling prices in major German cities and detected substantial upward movement in the years 2017 and 2018.5 Particularly interesting is the observation that above-average price growth was also registered in several East German cities. For instance, condominium prices showed a year-on-year increase by 21 percent in Erfurt, by 17 percent in Leipzig and by an actual 23 percent in Chemnitz.