House prices were down 4.28% during the year to Q3 2022

The signs of a continuing housing market slowdown in Germany are becoming more evident, as higher mortgage interest rates and rising inflationary pressures have compounded affordability constraints. The average price of apartments fell by 4.28% (inflation-adjusted) during the year to Q3 2022, in stark contrast to the previous year’s 8.96% growth. In fact, it was the first quarter of y-o-y decline in eight long years. On a quarterly basis, real house prices declined 4.47% in Q3 2022.

Germany’s housing market has been growing continuously since 2014, with house prices up by more than 70% from Q1 2014. Years of very low interest rates have made it easy for households to move to larger, more expensive homes and for first-time buyers to get into the property ladder.

Demand falling, residential construction weakening

Demand is now falling, amidst rising interest rates, coupled with decreasing purchasing power caused by soaring inflation. In fact, according to online real estate portal Immoscout24, demand plunged by a huge 36% in Q2 2022 from a year earlier.

Residential construction activity is also slowing. In the first three quarters of 2022, dwelling permits fell by 3.7% y-o-y to 272,054 units, following annual growth of 3.4% in 2021 and 2.2% in 2020, according to the Federal Statistical Office (Destatis). 

Rents, rental yields: moderate yields at 2.78% to 3.37%

Germany: city centre apartment, buying price, monthly rent (120 sq. m.)

  Buying price Rate per month Yield
Berlin € 384,000 - €649,000 €755 - €2,000 2.84%
Frankfurt € 286,500 - €799,000 €900 - €1,500 3.37%
Munich € 559,000 - €789,000 €1,255 - €1,695 2.78%
Stuttgart € 385,000 - €389,500 €1,220 - €1,531 3.81%
Hamburg € 300,000 - €770,000 €822 - €1,170 2.83%
Leipzig € 279,500 - €379,000 €700 - €885 3.18%
Cologne € 399,500 - €530,000 €1,090 - €1,270 3.04%
Düsseldorf € 423,000 - €594,000 €1,110 - €1,250 3.09%

Recent news: Germany’s economy grew by 1.3% in Q3 2022 from a year earlier, a slowdown from year-on-year expansions of 1.6% in Q2 and 3.6% in Q1, according to Destatis. On a quarterly basis, Europe’s biggest economy grew by a miniscule 0.4% in Q3 2022, mainly due to declining trade caused by the difficult global economic conditions caused by the continuing supply chain disruptions, as well as the war in Ukraine. Soaring energy prices and increasing cost of borrowing are also weighing on investment and private consumption.

As a result, the European Commission expects the German economy to grow by just 1.6% this year and contract by 0.6% in 2023, following a modest 2.6% expansion in 2021.