After a turbulent 2023, the German real estate market is showing signs of recovery, according to experts. Falling property prices, lower loan interest rates, and rising wages are helping make homeownership more affordable again.
The real estate crisis that struck Germany in 2023 is beginning to ease, with a positive outlook for the future, according to a new forecast from the Gewos Institute for Urban, Regional, and Housing Research in Hamburg. Key factors driving the recovery include declining property prices, slightly lower interest rates on loans, and increasing wages. For homeowners, these changes have made purchasing homes more affordable.
Recent months have already seen a rise in real estate transactions, and experts predict this trend will continue throughout the year, although from a much lower starting point. “In the medium term, transactions, revenue, and property prices will not return to pre-crisis levels,” the report notes, referencing the booming real estate market that came to a halt in 2022 after a sharp rise in credit interest rates.
Lower interest rates and higher wages fuel demand
In addition to falling property prices, construction loan interest rates have also dropped significantly. According to FMH-Finanzberatung, the average interest rate for ten-year mortgages is now 3.3%, compared to almost 4% just a year ago. Meanwhile, wages have increased substantially for many workers due to strong labor union negotiations, driven by inflation. This combination of lower interest rates and rising wages is making homeownership more accessible.
Gewos expects the total revenue from residential real estate sales to grow by around 11% this year, reaching over €172 billion (up from €155.7 billion in 2023). The number of transactions is also projected to rise by 11%, to approximately 545,000. While affordability for homeowners is improving, real estate investments remain less attractive for institutional investors. “Despite rising rents, the yield gap compared to lower-risk investments remains small,” said Sebastian Wunsch, head of real estate market analysis at Gewos.
No recovery in housing construction
Despite the overall market recovery, housing construction remains in crisis. “Current figures from the expert committees indicate a further decline in land sales for residential construction, particularly for single-family homes,” said Wunsch.
In 2023, the German real estate market was hit by a severe downturn, with significant declines in revenue, especially in the sectors of residential development land, multi-family housing, and commercial real estate. However, the single-family home market remained relatively stable.
Overall, real estate market revenue in 2023 amounted to approximately €202.4 billion, a drop of nearly 28% compared to the previous year. The number of transactions also fell to an all-time low of around 666,700, a decrease of 15.2%. Gewos based its findings on a nationwide analysis of property purchase contracts and related transactions.
