Real estate prices are exploding: Benefit from new interest rates now!

Real estate prices are exploding: Benefit from new interest rates now!

Real estate prices in Germany are showing an upward trend. In the first quarter of 2023, residential property prices increased by 3.8% compared to the previous year. This increase marks a turning point as prices had been declining recently, since the fourth quarter of 2022. Now the cost of housing has risen again, like World reported.

In the seven largest cities in Germany in particular, apartment prices increased by 3.8%. In major cities, prices even rose by 6.1% compared to the same quarter last year. More densely populated rural counties also saw a 4.1% increase, while less dense rural areas saw prices rise 2.5%.

Development of single and two-family homes

Single- and two-family houses have become more expensive by 3.4% in independent cities outside of the large metropolises. This illustrates the ongoing pressure on the real estate market, despite the overall economic uncertainty.

Relaxation in the interest rate market

On the other hand, the interest rate market is showing a pleasing improvement. The European Central Bank (ECB) has been cutting key interest rates since June 2024, after peaks of 4% for deposit interest rates and 4.5% for the main refinancing rate were reached in the summer of 2023. The main refinancing rate is currently 2.15%. This enables building financing with a ten-year fixed interest rate from 3.3 to 3.5%, with offers of less than 3% being available with top credit ratings. Borrowers can therefore enjoy significant savings: over a period of ten years, they can save tens of thousands of euros compared to the previous year.

In addition, it can make sense to invest excess funds in special repayments, as these can be more effective than the current daily interest rates of 2-2.5% before taxes. For emergency reserves, it is advisable to leave them in current accounts to ensure short-term liquidity.

As property prices continue to double, it remains to be seen how this combination of rising prices and falling interest rates will impact the property market and mortgage lending in the long term. Further information on this topic and current developments in construction prices can be found at Destatis.