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German residential retail overvalued by up to 40% – Bundesbank

And it’s not just limited to cities, the squeeze is also being felt outside of urban areas


Pete Carvill

Residential real estate prices in German cities were 15-40% overvalued in 2021, according to the nation’s Bundesbank.

In its newest monthly report, the Bundesbank said that current estimates put the price of residential real estate above those indicated by socio-demographic and economic fundamentals. This was against a backdrop in which the prices increased sharply not only within cities but outside all urban areas.

Says the report: “In Germany as a whole, residential property prices increased by 11.3%, according to data from the Association of German Pfandbrief Banks (vdp). The average house price index published by the Federal Statistical Office for the first three quarters of 2021 also rose sharply year-on-year by 10.6%. The EPX house price index of Hypoport AG also indicates high rates of price increases for residential real estate, at 12.8% in 2021. All three indicators thus show the highest price increases since the start of the recent upturn on the residential real estate market.”

It added: “In the cities, residential real estate became noticeably more expensive in 2021. According to calculations based on data from bulwiengesa AG for 127 German cities, prices rose by 7%. Compared with the two previous years, when growth rates had slowed, prices thus rose somewhat more sharply again. In the seven major cities, price growth was only slightly higher at 7.5%.”

The main drivers behind demand were subdued, said the Bundesbank, noting that disposable incomes rose by only 1.8% last year after barely increasing in 2020. Meanwhile, interest rates on mortgages remained ‘virtually unchanged’ at 1.3% in 2021.

The report adds: “As income growth lagged behind house price growth and interest rates did not provide any significant relief, affordability deteriorated in the face of strong price growth.”

Increasing house prices and the use of real estate as an investment hedge have been frequent topics on Expert Investor pages in the last year. Not only are UK house prices increasing disproportionately, but this is a trend that is being replicated across Europe. In the German capital of Berlin, there has been an ongoing housing crisis for much of the last decade, exacerbated and pushed by investment funds snapping up cheap real estate, then increasing rents and prices.