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Germany home prices to fall modestly this year and next: Reuters poll

BENGALURU (Reuters) – Home prices in Germany are forecast to correct modestly this year and decline a bit more in 2024 as a series of interest rate rises further cools hot demand for property during the pandemic, according to analysts polled by Reuters.

Higher borrowing costs, along with still-elevated consumer inflation, dragged average residential prices down 3.6% in the final quarter of 2022 on a year earlier, their biggest decrease since the 2007-08 financial crisis.

Rate rises have also pushed Europe’s biggest economic engine into a mild recession. But the recent decline in home prices is small compared to around a 25% surge since the COVID pandemic began.

With the European Central Bank widely expected to deliver at least two more 25 basis point rate hikes, the cost of owning a home for the first time could remain prohibitive for many prospective buyers.

Average home prices are expected to decline 5.5% this year, according to the median view from a May 16-31 poll of 10 property experts, broadly unchanged from a February survey.

That would be the biggest annual fall since official data was first published a little over two decades ago. House prices were forecast to decline another 2% next year.

“Higher interest rates significantly reduce the demand and therefore lead to price reductions … in this and the next few years. Nevertheless, supply will remain short, which prevents housing prices from slipping off,” said Sebastian Schnejdar, senior real estate analyst at BayernLB.

“Despite light price reductions, home prices will still be high. Therefore, German first-time homeownership rates will stay low.”

The median forecast for peak-to-trough fall was 10.0%, slightly lower than the 11.5% predicted in a February poll, with the steepest forecast at 12.5%.

Over three-quarters of respondents, seven of nine, said a significant downturn was more likely than a rebound in home prices for the rest of 2023. But a tight supply indicates any decline in prices could be limited.

Building permits for homes plummeted nearly 26% annually during the first quarter of 2023 partially due to high material costs, according to the Federal Statistics Office.

Still, respondents were split on whether purchasing affordability for first-time home buyers would worsen or improve over the coming year.

“Although house prices have fallen and wages have risen, affordability has continued to worsen,” said Carsten Brzeski, global head of macro at ING.

“Looking ahead, house prices are not expected to fall sharply enough or wages to increase significantly enough to compensate for the rise in financing costs.”

(For other stories from the Reuters quarterly housing market polls:)


Source: Economy - investing.com

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