GERMANY’S HOUSING MARKET FACES A SERIOUS DOWNTURN IN PRICES

The German housing market has been strong for decades, but it faces a serious downturn in prices over the next couple of years, according to analysts.

Mortgage rates have soared, with a 10-year fixed rate up from 1% to 3.9% since the start of the year, which typically causes demand to cool as fewer people can afford to take out loans.

House prices have already declined around 5% since March, according to Deutsche Bank data, and they will drop between 20% and 25% in total from peak to trough, forecasts Jochen Moebert, a macroeconomic analyst at the German lender.

“If you think about mortgage rates of 3.5% or 4% then you need higher rental yields for investors and given that rents are relatively fixed, its clear prices have to fall,” Moebert said.

Rental income is a priority for German investors, with approximately 5 million people in Germany receiving revenue from renting, according to The Cologne Insitute for Economic Research, and the country having the second-lowest share of homeowners of all the OECD countries, according to the Bundesbank.

While Deutsche Bank doesn’t have specific data for when the bottom will be reached, Moebert said he wouldn’t be surprised if it was over the next six months.