Real estate prices in Germany: Where property is now still affordable!

Real estate prices in Germany: Where property is now still affordable!

Despite the current decline in real estate prices in Germany, the dream of owning a home remains out of reach for many. A report by ZDF, which is based on a study by the German Economic Institute and the credit broker Interhyp, shows that large cities and their surrounding areas in particular are hardly affordable for many buyers. While property prices have fallen, incomes have risen in many regions. Still, home affordability is more critical than ever.

The study created an “affordability index” that measures the relationship between property prices and income. The index found that real estate is currently “more affordable” than it will be in 2023. However, it should be noted that the seven largest German cities, including Munich and Hamburg, performed poorly. All are below the target affordability threshold.

Regional differences in affordability

The differences between different federal states are particularly noticeable. Saarland is considered the most affordable federal state with an index value of 151, while Bavaria with a value of 84 and Berlin with 87 are classified as the most unaffordable regions. In a detailed overview, Holzminden in Lower Saxony has the highest index value (174), while Miesbach in Bavaria has the lowest (52). These figures make it clear that it is significantly cheaper to purchase a property in rural areas.

• Indexwerte der Bundesländer:
• Saarland: 151
• Bayern: 84
• Berlin: 87

A property is considered “affordable” if buyers spend a maximum of 35% of their monthly net income on financing. The index value of 100 corresponds to this 35% threshold, values ​​below indicate that potential buyers have to pay a larger share of their income to be able to afford a home.

Economic forecasts and trends

Economist Michael Voigtländer expects purchase prices and rents to increase by 3-5% annually in the coming years. In this context, he calls for “broad support for new construction” in order to defuse the tense situation. Real estate prices are still comparatively cheap, especially in smaller cities such as Wolfsburg, Saarbrücken and Bremerhaven.

The OECD has also published a housing affordability indicator showing that more than half of Germans want to own a detached single-family home. To assess financial feasibility, the indicator value fell from 176.3 points in 1980 to 107.0 points in the third quarter of 2024. This means that, on average, the financial burden has decreased.

However, the trend step shows that affordability stagnated during the global financial crisis of 2007-2008 and continued to decline in the following years. However, affordability began to increase again from the second quarter of 2022, a development attributed to rising interest rates and falling property prices. In addition, the disposable net household income of private households has increased faster than property prices. Aspects such as building interest must also be taken into account because, despite the decline in property prices, they play a crucial role in the affordability of new buildings.

In summary, despite positive developments in the affordability of residential property in parts of Germany, the large centers continue to pose a challenge for buyers. There is potential for improvement, but targeted measures are needed to promote affordable housing for everyone.

For more information, visit the ZDF article here and the Statista infographic here.