Real Estate Bubble bursting in Germany?

According to this article from German news media:

Prices for apartments and houses have recently fallen more sharply than they have in over 20 years. The trend exists in cities as well as in the countryside. And experts also expect a price decline for 2024.

Prices for apartments and houses in Germany  have recently fallen more sharply than they have in over 20 years.

Seems very much promising for all the doomers out there, however a few things to call out:

  • Germany isn’t the canary in the coal mine for North America. Germany is undergoing a lot more demographic disruption than even most of the rest of the world. This is also true for most of Europe at the moment, with plunging growth rates.
  • The last decade was just a joke because money got so cheap that every real estate asset was bought using “printed” money. Interest rates were <1% which meant that everyone could get a ton of money, no equity needed and outbid each other.
  • It made no sense to buy RE other then hoping for a greater fool to buy your RE for a higher price. Families where shit out of luck and had to buy for those inflated prices.

Here’s the Germany situation explained in a few graphs:

Real estate prices grew as supply was fueled by low interest rates, now it seems the party is over and prices are slowly readjusting.

Would we see the same happening in the US? Maybe, however the sociodemographic conditions are significantly different and the lack of US supply would still reduce the potential for a more significant market readjustment.

See the full translation of the article below:

For the first time in over twenty years, Germany has witnessed a notable decrease in the prices of houses and apartments. This trend has been present in all areas, from cities to rural locations. Experts predict that this downturn will continue into 2024.
Between the months of July and September, housing prices fell by 10.2% compared to the same period in the previous year. This is the most substantial decrease since the turn of the millennium in 2000. In the second quarter, there was a decline of 9.6%.
This trend in price decline was observed both in the cities and in rural areas. In major metropolitan areas such as Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart, and Düsseldorf, the cost of houses for single or dual families decreased by a substantial 12.7%. Buyers of apartments in those cities had to pay 9.1% less on average than a year before.
Analysts believe that this declining trend will persist in 2024, with a predicted price decrease ranging from 0.5% to 2.5%. According to a study done by DZ Bank, uncertainty in the political landscape around property restoration and new construction has been a significant factor contributing to the price fall.
As of now, new housing production is not meeting its intended target. The German government has a goal of producing 400,000 new flats annually. However, this target will not likely be met in the coming years. Due to surging construction and financing costs, the bank predicts that the annual completion of housing might even fall to 200,000 units in 2025.
In contrast, the German Institute for Economic Research (DIW), in a not yet published report commissioned by the Federal Ministry of Construction, estimates the number of newly built apartments this year at 269,000. For the coming year, the Institute forecasts the completion of 265,000 new flats, revealing that even this optimistic estimate significantly falls short of the government’s intended target.


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