Interest Rates Slightly Decrease: Banks Note Rising Property Prices but Anticipate No New Boom

Recent trends indicate that while interest rates have seen a slight decline, property buyers are facing increased costs when purchasing homes. According to the latest data from the Association of German Mortgage Banks (VDP), residential properties, including houses and apartments, were priced approximately 2.1% higher in the fourth quarter of 2024 compared to the same period the previous year. When assessed against the previous quarter, prices rose by 0.7%.

Bank representatives suggest that although there is a stabilization in property prices, a new surge resembling the low-interest rate era is not on the horizon unless interest rates drop significantly.

After a prolonged period of escalating prices, the real estate market has experienced a notable downturn since its peak in 2022, primarily driven by rising interest rates making loans more expensive. However, due to the recent slight reduction in rates, there has been an uptick in consumer demand for property loans. Consequently, prices for both homes and apartments have been gradually increasing over the past several quarters, including a rebound in the commercial real estate sector at the end of 2024.

Among residential properties, multifamily homes experienced the most significant price increase, with a rise of 2.9% over the past year. This trend indicates a return of some major investors to the market. In contrast, single-family homes and condominiums saw a more modest price growth of only 1.2%.

In metropolitan areas such as Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, and Stuttgart, residential real estate prices increased by 2.3% compared to the end of 2023, outpacing the national average. From the third quarter of 2024, these areas reported a 0.9% rise.

While property prices are stabilizing, rental prices have surged significantly. The average new rental prices for multifamily homes escalated by 4.6% nationwide and by 3.9% in the major cities within the same timeframe. The high demand coupled with a limited supply suggests that rental price increases are likely to continue.

To address the ongoing housing affordability crisis, stakeholders are advocating for more substantial and reliable support measures for home builders. Additionally, discussions around reducing the property transfer tax have gained traction. Observers note that the lack of focus on housing policy during the recent electoral campaigns is perplexing, given the pressing issues at hand.