The real estate market is booming: banks are granting record loans for apartments!

The real estate market is booming: banks are granting record loans for apartments!

Banks granted residential property loans worth 24.4 billion euros in the first quarter of 2023, an increase of 31.9 percent compared to the previous year. This development was interpreted by the Association of German Pfandbrief Banks (VDP) as a sign of an upturn in the German real estate market. Multifamily loans in particular saw a notable increase of over 51 percent. However, this increase follows low levels after property prices have fallen since their peak in 2022. A sharp rise in interest rates had previously made loans more expensive and caused many potential buyers to abandon their purchase plans.

However, the general mood on the real estate market has changed. Sellers had to lower their asking prices as home prices rose an average of 3.6 percent year-on-year in the first quarter of 2023. Rents have also increased, as the Kiel Institute for the World Economy (IfW) notes. The interest rates for ten-year real estate loans have now stabilized at around 3.5 percent. Real estate expert Michael Voigtländer expects moderate price increases for houses and apartments this year, while many buyers are willing to buy now rather than wait for lower prices.

Real estate prices under pressure

In 2023, real estate prices in Germany experienced a historic decline that has not been this severe in 60 years. These declines contributed to many buyers being unable to afford a home that same year due to high purchase prices. Prices for residential real estate in 2023 were five percent below their peak values. Example prices illustrate the high purchase prices: single-family homes cost around 1.6 million euros in Munich, 750,000 euros in Mainz and 300,000 euros in Magdeburg.

However, the positive development in lending could signal a turnaround in the market. In 2024, property prices are expected to rise while interest rates fall. The European Central Bank (ECB) cut interest rates four times in 2024 to three percent, which could reduce the average interest rate on ten-year loans to between three and three and a half percent at the end of 2024. Lower interest rates result in savings of several hundred euros per month for buyers.

Market development and forecasts

The dynamism of the real estate market is increasing, but remains limited in large cities. The new construction is problematic because the target of 400,000 new apartments annually was not achieved. Experts are calling for more impetus from the future federal government to support the market, including through a free contribution to real estate transfer tax and an expansion of new building subsidies. A lack of equity prevents many potential buyers from purchasing property.

In view of rising rents and falling interest rates, possible price increases for real estate are also expected in 2025. Experts advise buyers to choose a property that can be lived in long-term as well as rented out. The purchase could also bring advantages in a developing market.

Reported in summary stern.de that banks are increasingly granting loans while tagesschau.de describes the development of real estate prices in Germany as well as current market trends.