Rising property prices despite declining demand

Despite declining demand for residential properties in Germany, prices continue to rise, defying typical market expectations. The increase in prices is occurring even as fewer people are able to afford homes due to soaring mortgage rates, which have been on the rise since 2022.

The trend, attributed to a combination of financial and geopolitical factors, has led to significant changes in the German housing market. Interest rates for construction loans have climbed towards 4.5%, which Carsten Brzeski from ING Bank notes has resulted in a marked decline in new construction loan requests over the summer.

The rate hikes began with the so-called "interest rate turn" in 2022 when the European Central Bank raised interest rates for the first time in over a decade, ending an extended period of historically low rates. More recent geopolitical tensions, such as the outbreak of the war in Iran, have further exacerbated the situation, pushing rates higher and affecting the affordability of home ownership.

The online real estate platform Immoscout24 reported a 7% drop in purchase inquiries for houses and condominiums from May to September. Conversely, demand for rental properties increased by 12% within the same period, according to data from the "IW Residential Barometer." This surge emphasizes a shift in preferences as potential buyers are increasingly considering renting as a more viable option.

While demand for purchasing homes decreases, the supply is on the rise. The Institute of German Economics (IW) has noted a significant increase in the number of single-family and duplex houses, along with condominiums available for sale since 2022. The second quarter of 2026 showed nearly twice the number of condominiums and approximately a 140% increase in houses listed compared to the first quarter of 2022.

The IW states that the broader range of properties on the market is more a reflection of reduced demand and lengthier sales times rather than an actual increase in the number of homes. Many properties that were purchased during the low-interest-rate period are now facing financial pressures as the loans come up for refinancing at the new, higher rates.

Experts warn that many private property owners are struggling with the increased financial burden. Those who bought homes or apartments during the low-interest phase are finding that the cost of refinancing is prohibitive, leading to a potential increase in the number of properties being sold.

As the market adjusts, the dynamics between supply and demand are expected to continue influencing property prices. However, the combination of increased mortgage rates and the shifting economic landscape means that unpredictability remains a defining feature of the current real estate market in Germany.

Photo by Jakub Zerdzicki on Pexels