German housing market sees biggest price drop in 60 years
Figures from the Kiel Institute for the World Economy (IfW) have revealed that the cost of property on the German housing market saw the sharpest drop in 60 years during 2023.
German property prices see historic drop
During 2023, the cost of buying a flat fell by 8,9 percent. For a detached house, costs fell by 11,3 percent and for semi-detached homes, by 20,1 percent.
“The speed and extent of the current fall in real estate prices in Germany are historically unprecedented. Never since the expert committees started recording prices in the 1960s, have real estate prices fallen so quickly and sharply,” the report said.
The IfW said that the last time a significant drop like this was seen was in the mid-1990s. “Sales prices fell to a similar extent - slightly less for houses, a bit more for apartments - but it took about 10 years for this to happen,” authors wrote.
IfW President Moritz Schularick added, “Given the exorbitant price increases over more than 10 years and a new interest rate environment, a phase of price correction is entirely appropriate and not economically alarming to the extent we've seen so far”.
In which German cities have house prices dropped?
19 German cities were included in the analysis, with prices falling particularly sharply in Cologne and Stuttgart, each by 3,6 percent in comparison to the previous quarter. Alongside Düsseldorf, the IfW named these three cities as the most affordable cities when it came to housing prices per square metre.
Prices in Berlin (-0,4 percent), Frankfurt (-0,2 percent) and Hamburg (+0,2 percent) plateaued, while the cost of a house in Chemnitz (-3.5 percent), Wiesbaden (-3.9 percent), and Karlsruhe (-3.9 percent) fell.
What 2024 will bring is yet unsure. "It might be that we are seeing the beginning of a stabilisation in real estate prices. However, the coming quarters will show this for sure,” Schularick concluded.
Housing in Germany is still unaffordable for most working families
Of course, even though house prices saw the sharpest drop during 2023, the cost of buying a house in many parts of Germany is still unaffordable for most working people. According to an assessment by the property portal Immowelt published in early 2023, a family of three in a German city has to earn a minimum of 5.000 euros per month before tax to be able to afford a 90-square-metre house or flat.
In Munich or Hamburg, families have to dig even deeper to afford a home large enough for three. Living in the country’s most expensive city, families in Munich have to fork out 823.590 euros to buy a 90-square-metre property. Paid out by a family of three with one child, with one adult working full-time hours and the other working part-time, monthly payments of 4.255 euros (according to interest rates in early 2023) would snatch a staggering 88 percent of an average family’s monthly income.
To afford Hamburg prices, Immowelt estimated that families had to have an income of at least 10.135 euros per month to comfortably cover the cost of buying a house in the city state.