Will real estate prices fall in 2022?

Residential real estate is still in short supply in Germany's major cities. Prices for apartments and houses continue to rise rapidly. However, experts are seeing the first signs of a turnaround in real estate prices. But how long will it take for the real estate market to return to normal?

According to the Federal Statistical Office, the rise in purchase prices for houses and apartments accelerated again last year. The national average in the third quarter of 2021 was Prices twelve percent higher than in the same period in 2020, the highest increase ever measured since the start of recording in 2000.

Signs Rent

However, economists are seeing the first signs of a trend reversal in rents, for example. Rents appear to have reached an upper limit in the particularly tight major cities. In 23 of the 50 most expensive cities in Germany, new contract rents are expected to have fallen slightly in the third quarter of 2021 compared to the second quarter. This was the result of a study by the consulting and analysis company F+B, which specializes in the real estate market.

Signs of vacancy

For the first time in 14 years - albeit slightly - the Vacant apartments. This is shown by the vacancy index of the Empirica research and consulting institute. However, Empirica CEO Dr. Reiner Braun emphasizes that "the problem of the housing shortage in the so-called swarm cities" has not yet been solved. Especially in the lower price segment, this is still noticeable in many tight rental markets for those looking for a home.

Reasons for the trend reversal

Real estate experts see several reasons for the current trend. On the one hand, immigration to the metropolitan areas is decreasing. At the same time, the weakening economy is limiting disposable incomes. In addition, stricter laws and regulations are slowing down rent increases in many regions. New residential construction, on the other hand, is not yet expected to have an impact on price trends. Real estate experts point out that it can take years for new construction to have an effect on rents and prices.

They also emphasize that the high price level of new buildings hardly provides any relief for lower and middle income groups. Michael Voigtländer, Head of Financial Markets and Real Estate Markets at the German Economic Institute, says that nominally falling rents in urban centers are utopian. For him, it is more likely that a longer sideways trend in rents with rising incomes would reduce the burden on tenants.

Is the real estate bubble looming?

Some experts see a problem in the fact that the development of rents and low interest rates can no longer be the sole cause of current house prices in some cities and market segments. According to the experts, speculative bubbles have formed in Berlin, Munich, Hamburg and other major cities. Some prices are said to be up to 30 percent above value.

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Notes

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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