Building interest: Buying a house costs 1000 euros more – per month

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Residential area in Baden-Württemberg: As a seller, you should not mourn the prices of two years ago

Photo: Werner Dieterich / Westend61 / IMAGO

The data from the review committees come late, but they are precise. All house and apartment purchases are reported locally to these expert committees set up by the legislator, with the prices paid in real terms. The Hamburg-based Gewos Institute collects and publishes the data nationwide. Based on the experience of the previous year, Gewos then forecasts the development of transactions and prices for the current year. And the forecast for 2023 is bleak.

Buyers in Germany are expected to spend almost 30 percent less money on the purchase of real estate in 2023 – almost 150 billion euros instead of 211 billion. In 2021, the figure was even over 250 billion euros.

A quarter less real estate is actually to be bought and sold. What is interesting about the Gewos figures is that they reflect both the credit-financed purchases and those that are made exclusively with equity, i.e. without any credit at all.

Behind the two figures lies the secret of the current real estate market. The owners, who want to sell but don't have to immediately, have the high prices of recent years in mind and are reluctant to let go of them. Potential buyers, on the other hand, look at the properties, turn on their calculator and come to the conclusion: I can't afford it, I'd rather leave it.

In fact, twice as many properties are offered for sale on Immoscout's pages today than there were 18 months ago, the Immoscout press office told me this week. The properties would be on the pages longer and longer because they are not sold.

Competitor Immowelt also reports significant increases in supply. There are problems in particular with the sale of new buildings. This is because real estate developers are more likely to have estimated even higher prices than builders who are "only" tormented by high construction costs. Some developers now can't get rid of their properties at the moon prices. In this area of tension, a lot of real estate developers are currently going bankrupt.

Difficulties with new buildings

Michael Neumann, CEO of the construction financing platform Dr. Klein, confirms that the figures for financing have declined significantly. "We have a stalemate, some don't want to go down with the prices, the others can't pay these prices." Even more than the number of transactions themselves, the purchase and construction of new apartments has declined, Neumann told me this week. If you can't pay for the originally planned property, then you can still switch to smaller houses and apartments in locations further away from the city center when buying. However, rescheduling is much more complex for new buildings.

In fact, according to Neumann, it is even evident that older properties are preferred when buying because of interest rate developments. On average, the old properties purchased through Dr. Klein are five years older today than they were years ago.

This makes the situation in the building trade precarious. Housing corporations such as Vonovia are currently putting large new projects on hold, while plumbers and roofers are losing orders or not receiving any follow-up orders. And of course, what applies to Vonovia also applies to many small builders. In fact, according to Dr. Klein, the number of new apartments among property developers and private builders is declining in parallel – far more than the decline in second-hand real estate.

And now, to move from the big picture to the small picture, here's an example. It's not really complicated, but it's ugly:

The A. family bought a house on the outskirts of a medium-sized German town 13 years ago. At that time, the family spent 400,000 euros on it, 300,000 of it as a loan. In 2020, the couple rescheduled and financed the remaining 200,000 euros over 15 years, for a very nice 1.5 percent interest per year from today's perspective.

And then came the job dream offer for Mrs. A in the spring. Family A. followed the job, moved to the other end of the republic and has been trying to sell the old house in the middle town ever since. At the end of 700, a neighbor raised 000,2021 euros for the practically identical house. The A. family would also like to have the 700,000 euros.

A dozen families have now looked at the house, but at the price of 700,000 euros, they all declined. The logic is always the same: the families had enough money for the utilities and 100,000 euros each in equity and would have had to finance 600,000 euros. No problem two years ago, but now? At four percent interest, there is an annual interest of around 24,000 euros, 2000 euros a month. But then the financing banks would also like to see one to two percent repayment, i.e. up to 12,000 euros a year, a total of 36,000 euros a year or 3000 euros a month. None of the families could cope with that. Why is easy to see. In everyday life, it is usually said that more than 30 percent of disposable income should not be spent on housing. If 3000,30 euros is to be only 10 percent, the net household income must be close to 000,50 euros, even with a 6000 percent quota, a net <>,<> euros would have to be available.

According to the latest available figures from the Federal Statistical Office, in 2018 only one-fifth of households were in an income range where it is worth thinking about such a property. And that started with the federal statisticians at that time from 5000 euros net per month. The statistics will be collected again in the coming winter, but the trend is clear.

Two years ago, the situation would have been even easier for the A. family. The interested families with 100,000 euros of equity would have had to pay only one percent interest for the 600,000 euros, with the three percent repayment recommended by the bank at the time, a total of four percent of the loan amount, or 24,000 euros a year – 2000 euros a month.

Many young dual-earner families could have done that.

Family A would therefore have to sell much cheaper in order to find buyers. But the family doesn't see that. If you rent out your house, you can easily achieve 1000 euros net cold rent. And with this money, the A. family could continue to pay the installments and keep the house without major financial contortions. Especially since the achievable rents for such houses tend to rise.

Just as the number of properties for sale in the listings has increased significantly, the supply of rental properties tends to decrease and prices are rising rapidly.

And what do you do now as a seller?

The most important basic rule: Don't mourn the prices of two years ago, but look ahead. If you want to sell your apartment or house in the short term, you should go on the market with a realistic asking price. If, on the other hand, you don't have any pressure, it may be worthwhile to take another look at the topic in two or three years. There are many indications that as inflation falls, construction interest rates will also fall again. Then real estate prices can rise again.

In some cases, it can also be a solution to rent out the property for a few years as soon as you have found something new yourself, like the A. family from the example. However, it is not everyone's cup of tea to go through life as a landlord. From the late call of the tenant because of the broken heating to the preparation of the tiresome utility bill, there is a risk of some annoyance. Quite apart from the fact that taxes are due on the rental income as additional income.

And what should you consider as a buyer?

As a potential buyer, it currently makes the most sense to simply wait and look around. Take a systematic approach to this. Pick a district or municipality. You can take your time to check how the school, doctor and shopping facilities are doing and what the connection to public transport is like. A good rail connection saves the (second) car.

In particular, check the offers of existing properties. You might find a bargain there. Many properties are waiting for a buyer. However, you will probably have to spend additional money on the house. Keyword: climate protection and remediation obligations. Details on the heating issue can be found here .

And keep an eye on your rental situation. If the lease is old and it is unlikely that the owners will terminate their lease for their own use, you have the upper hand.

The following applies to everyone involved: Relax – and then good luck!