Buying real estate: general conditions better than before

For many people who want to own their own home, buying a property currently seems unrealistic. Inflation as well as increased interest rates and construction costs make real estate seem unaffordable. But were the conditions for buying a property really better in the past?

A comparison of the current situation with the 1980s paints a different picture. Data from the Organization for Economic Cooperation and Development (OECD) shows that, from a long-term perspective, buying property is easier today than it was back then.

This is because the affordability index, which the OECD calculates on the basis of real estate prices and income, has fallen in recent years. Only the rise in interest rates is influencing current market developments, which is why prices have fallen significantly in many regions.

Real estate prices then and now

For the layman, things look different at first glance. Property prices have risen by around 150 percent since 1980. However, if inflation is included in the calculation, real property prices have only risen by 15.5 percent. At the same time, however, real incomes have risen by 41 percent. Wages therefore increased more than property prices. Affordability improved as a result.

Loans then and now

The rapid rise in financing interest rates to around 4 percent meant that prices and financing options no longer matched. The purchase price level is correcting more slowly than interest rates have risen.

"While the average monthly installment before the rise in interest rates was still at 1166 euros, one year later it was already 1505 euros," Jörg Utecht, CEO of the mortgage service provider Interhyp, told tagesschau.de.

In the 1980s, according to Utecht, building interest rates were 10 percent and higher for a ten-year fixed interest rate. For a loan of 200,000 euros, the monthly charge was 2,000 euros. With financing over ten years, this adds up to interest costs of 172,000 euros. Today, with an interest rate of four percent, the installment would be 986 euros and the interest costs would be around 70,000 euros.

Sought-after locations

Nevertheless, for many, buying real estate feels more expensive today. According to Jochen Möbert, real estate expert at DB Research, this is due to the fact that real estate prices in sought-after regions have risen sharply in recent years.

These are primarily metropolitan areas, where more people live today than in the 1980s. According to Möbert, real estate is less affordable here due to the short supply and high demand.

Property seekers are therefore much more reliant on the brokerage skills of estate agents. It is worth making the financing limits transparent so that the estate agent can bring together the possibilities of prospective buyers and the ideas of sellers.

Major hurdles today

The ancillary purchase costs for the notary, land register entry or land transfer tax are higher today than in the 1980s. Whereas the land transfer tax was 2 percent for everyone in 1983, today it is up to 6.5 percent, depending on the federal state. In order to raise the equity share of 20 to 30 percent of the purchase price, more has to be saved. Reiner Braun, CEO of empirica ag, emphasizes that many young families are no longer able to "save up for the rapidly rising prices and land transfer taxes."

Changing life plans

Changes in consumer behavior also have a major influence, says Braun. "Families in the 1980s saved more than they do today, partly because they restricted themselves more." But fewer and fewer people want to do this. According to Interhyp's affordability study, 54% - 8% more than in the previous year - state that they do not want to restrict their quality of life to cover mortgage costs.

Would you like support in finding an affordable property and suitable financing? Get in touch with us. We will be happy to advise you and put you in touch with a neutral financial advisor.

Note

For reasons of better readability, the generic masculine is used in this text. Female and other gender identities are explicitly included where this is necessary for the statement.

Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific individual case.

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