Real estate prices are rising massively: major cities are facing new records!

Real estate prices are rising massively: major cities are facing new records!

In the first quarter of 2024, prices for condominiums in German metropolises such as Cologne, Berlin and Stuttgart recorded a significant increase. According to the Institute for the World Economy (IfW), prices rose by 3.2 percent compared to the first quarter of 2023. Single-family homes increased by 4.7 percent, while multi-family homes even became more expensive by 8.7 percent. This price development represents the largest growth since mid-2022, indicating a recovery in the real estate market, which has faced challenges in previous years. Compared to the final quarter of 2023, prices for condominiums rose by 1 percent, while apartment buildings became more expensive by 1.1 percent. Single-family homes, on the other hand, are stagnating with an increase of just 0.1 percent.

The number of closed real estate deals exceeded the previous year's level by almost a third, indicating increasing trading activity. Jonas Zdrzalek, real estate market expert at the IfW, emphasizes that buyers have come to terms with the new circumstances. The strongest price increases for condominiums compared to the previous quarter were recorded in Cologne (3.4 percent), Stuttgart (2.1 percent) and Berlin (1.7 percent). More moderate increases were observed in Düsseldorf (1.3 percent), Frankfurt (0.7 percent) and Leipzig (0.6 percent), while no data was yet available for Hamburg and Munich.

Market analysis and trends

In addition to the increased prices, Engel & Völkers reports that the average asking price for condominiums in the first half of 2024 was EUR 3,822 per square meter. Munich remains the most expensive large city in Germany, with a price per square meter of EUR 8,715. Despite the continued high demand for residential properties, there is a decline in construction activity. While construction completions remain at the previous year's level, building permits show a negative trend.

The importance of energy efficiency for property quality is increasing. Buyers are increasingly looking to own their own homes, which is further driving demand. What is striking is that the average asking price for existing condominiums in the second quarter of 2024 is 7.8 percent below the peak in the second quarter of 2022. This development shows that trading activity is increasing in 2024 after reaching a low point last year. Improved financing options and a lower price level encourage potential buyers to be willing to buy.

Factors influencing the real estate market

The interest rate policy of the European Central Bank (ECB) plays an essential role in the market. The first key interest rate cuts in June 2024 did not immediately lead to a reaction to building interest rates, but at the beginning of August 2024 they fell to around 3 percent, which is over one percentage point below the previous year's level. Expected further interest rate cuts could boost demand even further and lead to a rise in property prices. Buyers again have the opportunity to choose between different properties without having to compete in bidding, which improves the purchasing conditions.

The development therefore points to a remarkable recovery phase in the residential real estate market, supported by stable demand and a favorable financing situation. These factors will be crucial for further price developments in the coming months.