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Single-family homes: prices are rising slightly again

Photo: Jan Woitas/dpa

According to a study, the downward trend in real estate prices in Germany has stopped. From October to December 2023, purchase prices for condominiums rose by 0.8 percent compared to the previous quarter, according to the analysis by the employer-related German Economic Institute (IW Cologne). For single- and two-family homes, the increase was similarly high at 0.6 percent. “The market has reached a bottoming phase,” is how the IW experts led by Michael Voigtländer summarize the results of their current housing index.

The phase of greater price reductions ended in the second half of 2023 and a turnaround appears to have been achieved. However, compared to the first quarter of 2022, the price level would still be more than eight percent lower - both for condominiums and for single- and two-family homes. Apartments and houses with a poor energy balance in particular have become cheaper.

Rents continue to rise

“Even against the backdrop of further interest rate cuts for real estate loans expected in 2024, sharp increases in rental prices and positive income developments for private households, it can be expected that the purchase market will enter a phase of normalization,” predicts the IW. The transaction numbers are likely to increase again. However, a sudden return to the very high transaction volumes by 2021 is not expected. "Rather, the market is on the way to a gradual recovery."

A trend that has been observed for some time now concerns non-owners. “Since the start of the high inflation phase in the first quarter of 2022 and the rise in interest rates for real estate loans, there has been increased momentum in new contract rents,” stated the IW. “This appears to have increased again at the end of 2023.” Accordingly, new contract rents in the fourth quarter were 5.3 percent higher than a year earlier and 1.6 percent more expensive than in the previous quarter. Within two years, new contract rents rose by an average of 8.7 percent nationwide.

In the largest German cities, rental prices rose significantly within a short period of time. Compared to the previous year, they increased the most in Berlin at 9.2 percent, followed by Leipzig with 7.8 percent and Munich with 7.3 percent. Since the beginning of 2022, the rental price increases in these three cities have also been the highest at 17 percent in Berlin, 12.2 percent in Leipzig and 10.5 percent in Munich. In Cologne the increase was similarly high at 9.5 percent.

“The shortages on the rental housing market will not be alleviated in 2024 either,” warned the IW. "On the contrary, lower completion figures are to be expected." In view of an increasingly tight rental housing market with rising prices, young families in particular are likely to be looking more closely for purchasing opportunities again. This would allow price developments to gradually return to a moderate growth path.

The IW Cologne wants to collect its housing index every quarter in the future. It is based on data from various real estate platforms.

mik/Reuters