German residential property prices experience steepest fall in 23 years

German residential property prices have experienced their steepest fall in 23 years, ending a decade-long boom that saw many ordinary earners increasingly priced out of their home cities.

Official figures show that prices fell by an average of 6.8 per cent in the first quarter of this year compared with the same time last year, the sharpest drop since records began in 2000.

Prices are down 3.1 per cent on average compared with the last quarter of 2022, confirming a slump in prices that became visible last year. The federal statistics office blamed the sharp slump on the steep rise in mortgage rates which, combined with persistently high inflation, is reducing buyers’ purchasing power.

Significant price declines were recorded in residential prices in rural areas and cities, though urban prices are falling more steeply.

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The largest price declines compared with the same quarter of the previous year were logged in cities that have noticed the sharpest rises in the last decade: Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf. Here prices for semidetached houses fell by 10.4 per cent, while apartment prices are 6.4 per cent down on average.

Overall average Berlin apartment prices have jumped 180 per cent in the last decade, with prices in certain areas often far exceeding that average. In a city where 85 per cent rent, compared with 49 per cent on average countrywide, pressure on Berlin rents has seen increasing demands on politicians for long-term price caps.

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Berlin property agents said they sensed a residential price slump as long ago as this time last year, expedited as the year went on by the European Central Bank interest rate increases. Since August 2022 the total value of home loans granted has dropped from €25.8 billion to €13.8 billion – though agents notice a new stabilisation in the last weeks.

“The gold-digger mentality is gone, with people buying silly things for silly money,” said one western Berlin agent. “But good properties in good areas and a sensible layout will still find a buyer, and there are a lot of cash buyers out there.”

The lower prices are unlikely to bring immediate relief to the German property market, increasingly as tight as in neighbouring countries. Munich’s Ifo economic institute has forecast that far fewer apartments will be built than promised. Just 200,000 new homes are likely to be completed this year, the Munich think tank said in a new study, about half the federal government target.

Things look little better in the medium term, with 21,000 building permits approved in April, down a third on the same time last year. Like other experts, Ifo analyst Ludwig Dorffmeister pointed to spikes in construction costs and interest rates for the decline.

“At the same time, there has been a sharp reduction in government supports,” he said. “This, combined with other long-standing problems such as high land prices, excessive bureaucracy and municipal regulations, all mean that housing activity will shrink even further in the years to come.”