Housing Market: Rising Property Prices Without a New Boom

The decline in property prices has come to an end, signaling a shift in the real estate market. Buyers looking for apartments or houses are encountering higher prices compared to last year, while those searching for rental properties are facing more significant challenges.

According to recent data from the Association of German Pfandbrief Banks (VDP), residential property prices rose by an average of 2.1 percent in the fourth quarter of 2024 compared to the same period the previous year. This marks a 0.7 percent increase from the third quarter of 2024. Jens Tolckmitt, the association's chief executive, noted that while property prices have stabilized, a new boom comparable to the low-interest rate era is not anticipated unless interest rates decrease significantly.

After a prolonged period of growth, real estate prices experienced a notable decline since their peak in 2022, primarily due to rising interest rates that made borrowing more expensive. However, with a slight reduction in interest rates recently, there has been an uptick in consumer demand for mortgage loans. This renewed interest has led to a gradual increase in property prices over the past few quarters, with even the struggling commercial real estate sector witnessing some gains by the end of 2024.

The most substantial price increase was observed in multi-family homes, which saw a rise of 2.9 percent over the year. This trend suggests that some large investors are returning to the market, according to Tolckmitt. In contrast, single-family homes and condominiums recorded a more modest increase of 1.2 percent.

In major metropolitan areas such as Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, and Stuttgart, residential property prices climbed by 2.3 percent compared to the end of 2023, surpassing the national average. From the third quarter of 2024, these cities experienced a 0.9 percent increase.

The VDP, which represents approximately 50 property financiers, including Deutsche Bank, Commerzbank, large savings banks, and regional banks, regularly publishes real estate data based on transactions from over 700 financial institutions.

In stark contrast to property prices, rental costs have risen significantly. New rental agreements for multi-family homes increased by an average of 4.6 percent nationwide and 3.9 percent in the seven major cities. Experts suggest that the demand for rental properties will remain high, driven by a limited supply.

Many individuals find it increasingly difficult to afford home ownership due to only slight reductions in purchase prices amidst rising interest rates, leading to a surge in demand for rental properties. Tolckmitt emphasized that addressing the housing shortage requires large-scale new construction initiatives, calling for more generous and reliable support measures for home builders. He also highlighted the need for a new government to simplify construction regulations while stressing the importance of reducing property transfer taxes to facilitate greater access to home ownership.

It remains puzzling to Tolckmitt that housing policy has not taken center stage in the current federal election campaign.