Germany's Residential Property Market Analysis 2025

The German housing market has now entered a cautious recovery phase, with recent data indicating a steady but moderate increase in activity, though ongoing economic and political uncertainty still poses a risk to a sustained rebound.

This extended overview from Global Property Guide covers key aspects of the German housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents

• Housing Market Snapshot
• Historic Perspective
• Supply and Demand Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

After a sharp decline in late 2022 and throughout 2023, Germany's housing market has entered a cautious recovery phase. According to preliminary results by the Federal Statistical Office (Destatis), the House Price Index rose by 3.18% year-on-year in the second quarter of 2025, marking the third consecutive quarter of positive annual growth since Q4 2024. In real terms, prices increased by 1.09% over the same period.

Germany's house price annual change:

Note: Germany House Price Index: New and Existing Residential Properties (2015 = 100).
Data Source: Destatis.

The Kiel Institute's GREIX index reflected a comparable trend, indicating a continued but moderate uptick. "Market activity has picked up, but it's still too early to speak of a boom," noted Jonas Zdrzalek, real estate market expert at the Kiel Institute.

While recent gains have helped offset part of the decline recorded over the past two years, experts emphasize that home values in most regions remain well below their 2022 peak. According to projections by the Kiel Institute, if the current moderate price momentum persists, nationwide apartment prices are unlikely to reach new all-time highs before early 2029.

VALUE Marktdatenbank data confirms a steady rise in purchase prices for both existing and newly built apartments. In Q3 2025, the nationwide average for existing properties reached EUR 3,499 (USD 4,087) per square meter, up 4.4% year-on-year, while new builds averaged EUR 5,570 (USD 6,506), an annual increase of 4.1%. Munich remained Germany's most expensive market, with prices of EUR 8,580 (USD 10,022) per square meter for existing homes and EUR 11,514 (USD 13,450) for new ones, whereas Dortmund remained the most affordable among the top ten cities.

Average purchase price in the ten largest cities:

Looking ahead, moderate price growth is expected to persist, supported by steady demand and limited construction activity, factors that are likely to maintain pressure on housing affordability. However, uncertainty in the broader economic and political environment poses a key risk to sustained recovery. "The recovery in the housing market continues, despite stagnating affordability of purchasing residential real estate, and we do not see a reversal in this trend. However, the high level of uncertainty, both economically and geopolitically <…> is likely to continue to weigh on consumer confidence," commented Carsten Brzeski, Global Head of Macro at ING, in an interview with Reuters.

According to a Reuters poll conducted between September 3 and 15, 2025, among 14 market analysts, German house prices are projected to rise by 3.0% year-on-year in 2025, followed by a slightly stronger increase of 3.5% in 2026.

Historic Perspective:

Structural Factors Behind Germany's Housing Market Shifts

In the early 2000s, Germany's housing market was marked by long-term stability, reflecting a broader macroeconomic environment of low inflation, moderate wage growth, and limited domestic investment in residential property. The national house price index showed only mild fluctuations, with average annual growth rates remaining below two percent and several years of negative real, inflation-adjusted movement. Unlike many other advanced economies, Germany largely avoided the speculative excesses and sharp corrections associated with the global financial crisis of 2008-2009. This resilience stemmed from structural factors such as a high proportion of renters, cautious lending practices, and a financial culture that emphasized stability over leverage. Consequently, residential real estate retained its function as a secure, rather than speculative, asset class throughout this period.

From around 2010 onward, however, the market dynamic shifted substantially. The combination of ultra-low interest rates, rising urbanization, and increased investment demand, both from households and institutional buyers, triggered a prolonged upswing in residential property values. In a context of steady economic growth and expanding employment, demand began to outstrip supply, particularly in metropolitan areas where new construction lagged behind population growth. The upturn reflected both structural and financial factors: limited land availability in urban centers, strong migration inflows, and the perception of housing as a safe, inflation-hedged investment in an era of historically low yields. Cities such as Munich, Berlin, and Frankfurt became focal points of this expansion, experiencing cumulative price increases far exceeding the national average and effectively redefining urban housing affordability in Germany.

By late 2022, however, the long cycle of expansion gave way to correction. The sharp rise in inflation and subsequent tightening of monetary policy led to a rapid increase in financing costs, significantly reducing affordability for new buyers and curbing investor appetite. This change in monetary conditions, combined with weaker consumer sentiment and growing economic uncertainty, resulted in a nationwide decline in residential property values. Nominal house prices fell by 3.94% in 2022 and by a further 7.11% in 2023, translating into real declines of 11.53% and 10.30%, respectively. The contraction was most pronounced in previously overheated city markets, where years of rapid appreciation had stretched affordability to record levels. By 2024, the downturn had begun to stabilize: nominal prices recovered slightly by 1.93%, although after adjusting for inflation, real values continued to fall marginally by 0.35%.

20-year annual house price change (based on end-of-year house price index and consumer price index):

Data Source: Kiel Institute for the World Economy.

Supply and Demand Highlights:

Supply Shortfall Persists Despite Policy Efforts to Boost Construction

Germany's housing market continues to face a persistent and deepening shortage of residential units. In 2024, the number of newly built dwellings, reported by Destatis on an annual basis, declined by 14.42% year-on-year to 251,937 units. "This was the first significant decrease after the number of completed homes stood at 294,000 in each of the years 2021 to 2023," the press release noted. According to Destatis, the downturn was driven primarily by rising interest rates and escalating construction costs, which have led many developers to abandon projects and deterred new investment.

This negative trend is also reflected in building permit data. The number of approved dwellings fell to 215,920 in 2024, a 16.98% year-on-year decrease and the lowest level since 2010. Although the first half of 2025 saw a modest 2.91% rise in approved dwellings (totaling 109,760 units), analysts warn against interpreting this as a direct sign of recovery, stressing that the uptick follows an already subdued baseline in recent years.

In response to the downturn, the federal government has introduced the "construction turbo" (Wohnungsbau-Turbo) initiative, designed to accelerate residential development by streamlining planning and approval processes. The program allows municipalities, on an opt-in basis and for a limited period, to deviate from standard zoning regulations, shorten approval timelines, and automatically approve applications that remain unprocessed after three months. Nevertheless, industry experts remain cautious about the initiative's near-term impact. Analysts from CBRE note that tangible effects are unlikely to emerge before 2026 and emphasize that further policy action will be required to stabilize the housing supply.

Forecasts from the Ifo Institute for Economic Research further underscore the market's challenges. The institute projects that only 205,000 dwellings will be completed in 2025, marking a 19% year-on-year decline, followed by 185,000 units in 2026, a further 10% drop. While Ludwig Dorffmeister, Specialist for Construction and Real Estate Markets at Ifo, observes that "in what continues to be a very difficult market, the general conditions, including financing, real wages, real estate prices, and achievable rents, have now improved somewhat," the institute does not expect completions to rise again until 2027, and even then only to around 195,000 units.

Note: Data includes dwellings in residential and non-residential buildings.
Data Source: Desantis.

Meanwhile, housing demand continues to increase, fueled by population growth, particularly from net migration to Germany's largest urban centers. Destatis reports that the national population reached 83.6 million in 2024, representing growth of more than 3% over the past decade.

Looking ahead, the latest spatial planning forecast suggests that population growth will stabilize between 2025 and 2045, though with significant regional variations. BNP Paribas Real Estate projects a 1% population decline in medium-sized cities (up to 100,000 inhabitants), compared with a 2% increase in large cities (over 250,000 inhabitants) and a 5% rise in so-called A-cities such as Munich, Hamburg, Düsseldorf, Berlin, Cologne, Frankfurt, and Stuttgart.

The formation of new households continues to outpace residential construction, exacerbating the imbalance between supply and demand, a challenge particularly pronounced in major metropolitan areas. This shortage is being further intensified by the sustained decline in construction activity.

According to the Federal Institute for Research on Building, Urban Affairs, and Spatial Development (BBSR), approximately 2.56 million new dwellings will be needed between 2023 and 2030, equivalent to roughly 320,000 units per year. Although this figure falls below the previous political target of 400,000 annual units, it still exceeds current output by a wide margin. The housing demand is especially acute in major cities: BBSR estimates that Berlin alone will require 23,000 new dwellings annually, followed by Munich (11,300) and Hamburg (10,200), with a combined total of 15,000 units per year needed in Cologne, Frankfurt, Stuttgart, and Düsseldorf.

With construction volumes not keeping pace with demand, additional increases in rents and property prices seem likely. "The sharp decline in construction activity is exacerbating the shortage on the supply side, while the demand for housing in urban centers and metropolitan areas remains consistently high, putting further pressure on residential prices," noted experts from Colliers in their latest report.

Rental Market:

Positive but Moderating Rental Dynamics, Regional Trends Vary

According to the Eurostat figures, there are more tenants than homeowners in Germany, with the share of households renting rather than owning their residence up from 47.5% in 2014 to 52.8% in 2024. The consistently strong demand in the rental market continues to support rent increases nationwide, although the pace of growth has slowed.

Germany's rent price index:

Note: Germany Rent Price Index, % change 1 yr
Data Source: OECD.

The nationwide transaction-weighted annual apartment rent index published by the Deutsche Bundesbank (DB), based on data from the real estate research company Bulwiengesa, showed a more moderate 3.7% growth in 2024, compared to 5.0% in 2023. For the 7 major cities (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart), the index recorded an even more notable slowdown from a 6.0% increase in 2023 to 3.5% in 2024.

More recently, the H1 2025 housing market overview from JLL also noted that rents in the country's largest cities demonstrate a positive but slowing dynamic: "Analysis of rental price trends in Germany's eight largest cities indicates a slowdown in growth. On average, total rents increased by 4.9% (compared to 8.1% the previous year). <…> Existing apartment rents increased by 6.8%, which is stronger than the overall market but weaker than last year's figure of 8.2%. <…> Rents for new constructions increased by 3.3%, which represents a significant slowdown compared to the previous year (10.3%)."

The report also underscores significant regional differences observed across major cities. According to JLL, the strongest increases in total rents in H1 2025 were recorded in Hamburg, Leipzig, and Düsseldorf, while Berlin showed sideways movement, indicating continued stabilization of the previously particularly dynamic submarket.

Data Source: Deutsche Bundesbank, based on data provided by Bulwiengesa.

In nominal terms, Munich remained the most expensive among the major cities, with the median asking apartment rent reaching EUR 24.11 (USD 27.34) per square meter in H1 2025, according to JLL. Berlin followed with EUR 19.49 (USD 22.10) per square meter, while Leipzig recorded the most affordable median rent at EUR 11.01 (USD 12.48) per square meter.

Against this background, Global Property Guide research conducted in September 2025 found gross rental yields for apartments in Germany average 3.51%, slightly down from 3.69% reported in July 2024. Among the monitored regional submarkets, the highest potential performance was observed in Stuttgart (4.67%), Leipzig (4.14%), and Berlin (4.13%).

Median asking apartment rent in key submarkets:

Looking ahead, rents in major German cities are expected to keep growing, with the dynamic in each submarket to be determined by the local demand-supply landscape. "While rents for existing properties continue to increase across locations, rents for new-builds are stagnating in some cities due to declining affordability. Wage growth is unable to keep pace with rising rents, and in the premium segment, rental units are increasingly competing with homeownership," CBRE experts explained in their H1 2025 market overview. "Due to the low number of completions, the supply of new-build apartments is declining in nearly all markets, further intensifying pressure on rents for existing stock."

"In the property year 2025, purchase prices will be under pressure, rents will tend to rise, too little will be built, and it will usually be too expensive," the annual outlook from Bulwiengesa summarized earlier this year.

To combat housing affordability issues, the new government that took office in Germany after the federal elections in early 2025 recently extended rent control measures for the major cities by another four years. The extension will maintain the cap for new contract rates in urban centers at 10% above the comparable rents in the area through 2029. The Ministry for Housing, Urban Development, and Building is also reportedly considering additional measures, such as stricter rules on index-linked rents and curbs on furnished lets often used to bypass existing rent caps.

Mortgage Market:

Uptick in Interest Rates to Slow Housing Market Recovery

After eight consecutive cuts to its benchmark rates (which brought the deposit facility rate to 2.00%, the main refinancing operations rate to 2.15%, and the marginal lending facility rate to 2.40%), the European Central Bank (ECB) has maintained its stance in recent months, making no further moves at the September meeting of the Governing Council. Despite the apparent stabilization of the European regulator's monetary policy, mortgage rates in Germany have been gradually rising throughout 2025, now reaching their highest level since the fall of 2024.

Germany's mortgage loan interest rates:

Note: Average Mortgage Interest Rate (AAR / NDER)
Data Source: ECB.

Analysts from ING attribute this reversal of the earlier downward trend to the German government's landmark decision to reform the debt brake, which loosened the country's borrowing limits and allowed for new investments in defense, infrastructure, and climate change mitigation. The consequent surge in the capital market interest rates, driven by rising expectations of government debt and improving growth prospects, in turn, led to an upward fluctuation in mortgage rates.

"Expectations of rising government debt pushed up long-term government bond yields, which fed through into lending rates," ING experts said in their September analysis, adding that, combined with increasing property prices and slowing wage growth, even marginally higher interest rates weigh on affordability and dampen demand in the housing market. "While the absolute increase may seem rather limited, the psychological impact could be more significant; a mortgage rate of above 3.7% could feel markedly less affordable than one close to 3.5%. Especially when one symbolic threshold is followed by another."

Data Source: ECB.

According to the ECB reporting, the average interest rate on new loans to households for house purchase in Germany reached 3.71% in August 2025, up from 3.52% in January. For outstanding housing loans, the average interest rate stood at 2.18% in August 2025, also up from 2.09% at the beginning of the year.

The general consensus among experts is that mortgage interest rates in Germany are unlikely to return to pre-2022 levels any time soon. "We have to expect that, due to the increased issuance of government debt － and here we see a Europe-wide trend － yields on the bond markets will rise. As a result, mortgage interest rates in this country are likely to remain in a range between 3 and 4 percent," said Rainer Eichwede of the building society Bausparkasse Schwäbisch Hall, as cited by Berliner Morgenpost earlier this year.

"The period of historically low interest rates between 2015 and the beginning of 2022, with housing loan rates sometimes below one percent, was an exception, not the rule －and will not be repeated anytime soon," summarized Mirjam Mohr, Chief Sales Officer at the mortgage broker Interhyp.

Average interest rates on loans to households for house purchase:

Even with somewhat higher interest rates, lending activity in Germany continued to show rebound growth in the first eight months of 2025, based on the ECB figures. Between January and August, the total value of new housing loans produced by German banks reached EUR 162.8 billion (USD 189.3 billion), which was 26.0% more than during the same period in 2024, although still notably below the comparable levels observed in 2022 and before. Of the total amount of new business reported, about 82% was represented by pure new loans and about 18% by renegotiations; year-on-year growth was observed in both categories of credit.

Data Source: ECB.

Against this background, the expansion of the housing loan stock in the country re-accelerated in 2024, registering a 1.3% year-on-year growth compared to 1.1% in 2023. As of August 2025, the total value of outstanding loans for house purchase maintained by German banks stood at EUR 1.63 trillion (USD 1.89 trillion), demonstrating a further 1.3% growth since the beginning of the year.

The relative size of the market, represented by the ratio of outstanding loans to GDP at current prices, was most recently estimated at 37.1% in 2024, down from a decade peak of an estimated 40.4% in 2021. Based on Eurostat figures, 23.2% of German households are homeowners with an outstanding mortgage or housing loan.

Data Source: ECB.

Socio-Economic Context:

Economic Activity Stagnates, New Government Initiates Reforms to Boost Growth

The German economy has begun to gradually recover from the energy-price shock. After slightly contracting for two years in a row (-0.9% in 2023 and -0.5% in 2024), economic activity is expected to broadly stagnate in 2025 before returning to a moderate real GDP growth in 2026. The European Commission spring forecast expected the indicator to reach 1.1% next year and highlighted that although private consumption in the country is projected to expand slightly, boosted by increases in purchasing power and lower interest rates, global trade tensions are set to significantly weigh on exports, constraining growth potential. More recently, in its October 2025 World Economic Outlook, the International Monetary Fund (IMF) placed the German economy's growth projections at 0.2% for 2025 and 0.9% for 2026.

The consumer price index (CPI) inflation in the country decelerated from the annual level of 8.7% in 2022 to 2.5% in 2024, according to the IMF, and is expected to subside further to 2.1% in 2025 and 1.8% in 2026. The most recent report from Destatis showed the indicator at 2.4% in September 2025.

Data Source: IMF.

According to the European Commission assessment, the overall economic stagnation impacts the country's labor market. As output contracted, employment growth has been decelerating since 2022, with declining employment in manufacturing largely offset by job growth in public services, education, and the health sector.

At the same time, as of early 2025, 28% of German companies still reported labor shortages, and the market is set to remain tight against the background of a rapidly aging population, according to the European Commission. In August 2025, Destatis reported a nationwide seasonally adjusted unemployment rate of 3.7%, which was slightly higher than 3.5% recorded during the same period a year ago. The indicator is, however, expected to fall back to 3.3% next year as employment growth picks up again.

Data Source: Destatis.

Overall, the large and diversified German economy continues, nonetheless, to face significant headwinds to growth, including its export-oriented nature (which makes it sensitive to rising competition from China and US tariffs), decreased competitiveness of the manufacturing sector due to high energy and labor costs, high corporate taxes, and other factors.

The most recent rating action from Fitch Ratings in July 2025 affirmed Germany's 'AAA' standing with a stable outlook, noting that the country's strong fundamentals are balanced against several structural challenges, which weigh on its growth prospects and put pressure on public finances.

To address growth-constraining structural problems, such as aging workforce, heavy red tape, and under-investment, the new coalition government formed in Germany under Chancellor Friedrich Merz after the federal elections in February 2025, has launched a broad "modernization agenda" featuring, among others, measures to reduce bureaucracy, develop faster digital services (e-government), and increase investment in modern technologies such as AI.

Sources:

1. Federal Statistical Office (Destatis)
   1. Inflation Rate at +2.4% in September 2025: https://www.destatis.de/
   2. Employment Almost Unchanged in August 2025: https://www.destatis.de/
   3. Residential Property Prices, 2nd Quarter 2025 (Preliminary) (DE): https://www.destatis.de/
   4. 14.4% Fewer Completed Apartments in 2024 (DE): https://www.destatis.de/
   5. 16.8% Fewer Building Permits for Apartments in 2024 (DE): https://www.destatis.de/
   6. Building Permits For Apartments in June 2025... (DE): https://www.destatis.de/
   7. Population Increased by 100,000 People in 2024 (DE): https://www.destatis.de/
2. Deutsche Bundesbank (DB)
   1. System of Indicators for the German Residential Property Market: https://www.bundesbank.de/
3. Press and Information Office of the Federal Government
   1. Rent Cap Extended (DE): https://www.bundesregierung.de/
4. Federal Ministry for Housing, Urban Development, and Building Policies
   1. Cabinet Approves "Construction Boost" (DE): https://www.bmwsb.bund.de/
5. Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR)
   1. Spatial planning forecast 2045 (DE): https://www.bbsr.bund.de/
   2. Housing Demand Forecast by 2030 (DE): https://www.bbsr.bund.de/
6. European Central Bank (ECB)
   1. ECB Data Portal: https://data.ecb.europa.eu/
   2. Key ECB Interest Rates: https://www.ecb.europa.eu/
   3. US Dollar/Euro, Monthly: https://data.ecb.europa.eu/
   4. US Dollar/Euro, Quarterly: https://data.ecb.europa.eu/
   5. US Dollar/Euro, Annual: https://data.ecb.europa.eu/
7. European Commission
   1. Economic Forecast for Germany: https://economy-finance.ec.europa.eu/
   2. Distribution of Population by Tenure Status, Type of Household, and Income group: https://ec.europa.eu/
8. International Monetary Fund (IMF)
   1. Country Overview: Germany: https://www.imf.org/
   2. 2024 Article IV Staff Report: https://www.imf.org/
9. Kiel Institute for the World Economy
   1. GREIX Index: https://www.greix.de/
   2. GREIX Sales Price Index Q2 2025: Moderate Price Growth in Real Estate: https://www.kielinstitut.de/
10. Ifo Institute for Economic Research
    1. Number of New Dwellings in Europe Falls Significantly: https://www.ifo.de/
11. VALUE Marktdatenbank
    1. Real Estate Market Data, Update Q3-2025 (DE): https://www.value-marktdaten.de/
12. BNP Paribas
    1. Residential Report, Germany, H2 2024: https://www.realestate.bnpparibas.de/
13. Bulwiengesa
    1. Bulwiengesa Property Market Index, 1975-2024: https://bulwiengesa.de/
14. CBRE
    1. Germany Residential Market H1 2025: https://www.cbre.de/
15. Colliers
    1. Germany's Housing Market: Facts, Trends & Perspectives 2025/2026: https://www.colliers.de/
16. JLL
    1. Housing Market Overview H1 2025: https://www.jll.com/
17. ING
    1. German Housing Market: Affordability Pillars Show Signs of Strain: https://think.ing.com/
18. Fitch Ratings
    1. Fitch Affirms Germany at 'AAA'; Outlook Stable: https://www.fitchratings.com/
19. DW
    1. Germany's Bundestag Votes in Favor of Reforming 'Debt Brake': https://www.dw.com/
20. Reuters
    1. German Home Prices Set For Steady Recovery Over the Next Two Years…: https://www.reuters.com/
    2. German Government Looks to AI and Cutting Red Tape to Revive Economy: https://www.reuters.com/
21. Refire
    1. New Building Minister Hubertz Signals Shift in Housing Policy: https://www.refire-online.com/
22. Berliner Morgenpost
    1. Will Mortgage Interest Rates Fall or Rise? Forecast & Development for 2025 (DE): https://www.morgenpost.de/