Sentiment in German housing construction has fallen to a historic low

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Construction site in Hamburg: New orders are missing, existing ones are canceled

Photo: Georg Wendt/dpa

The prospects for German housing construction are worse than ever. The mood among the relevant construction companies in Germany, as determined by the Ifo Institute, fell to a historic low at the beginning of the year.

Specifically, the Munich researchers' barometer on the business climate in residential construction fell from minus 56.9 to minus 59.0 points in January, as the institute announced in its monthly survey. This is the lowest value ever measured. There is therefore no rapid improvement in sight, because the prospects for the coming months are assessed to be worse than ever before: the barometer for expectations fell from minus 64.7 to minus 68.9 points.

"The outlook for the coming months is bleak," said the head of the Ifo surveys, Klaus Wohlrabe. “Residential construction continues to be exposed to a double burden.” While on the one hand there are no new orders, on the other hand projects continue to be canceled.

High interest and material costs are putting a strain on the industry

The federal government had actually planned to build 400,000 new apartments per year. But in 2024 it will probably only manage around half of that, and the number of approvals has recently plummeted. Other construction projects such as the renovation of dilapidated bridges or the construction of roads and cycle paths are also progressing slowly, and increased interest and material costs are also making construction expensive.

“A lack of orders is putting a strain on the business of residential builders,” said Wohlrabe. In January, 52.5 percent of companies complained about a lack of orders, compared to 56.9 percent in December. There was also a slight decrease in cancellations: 17.4 percent were affected, after 22.1 percent at the end of 2023.

However, according to the Ifo Institute, this is no reason for optimism. »We cannot yet speak of a trend reversal in housing construction. The difficult conditions have hardly changed,” said Wohlrabe.

However, there is a prospect that the European Central Bank (ECB) will cut its key interest rate several times this year in view of declining inflation. This means that building interest rates are also likely to fall, making financing cheaper.

Investors on the financial market have recently somewhat reduced their speculation about a rapid first interest rate cut by the ECB. A step down at the April interest rate meeting on the money market is now only estimated to have a probability of around 48 percent. Statements from the ECB's monetary authorities have recently dampened expectations on the financial market.

April/Reuters