Fall in residential property prices: Why a further decline is expected in 2024 - a financial expert explains.

Fall in residential property prices: Why a further decline is expected in 2024 - a financial expert explains.

According to a report by www.tagesschau.de, the prices for apartments and houses in Germany have fallen more sharply than they have in over 20 years. Between July and September 2023, prices fell by 10.2 percent compared to the same period last year, which represents the largest decline since the time series began in 2000. This development can be observed in metropolises as well as in rural areas. A further price decline is also expected for 2024, according to the experts.

Experts like Konstantin Kholodilin from the Macroeconomics Department of the German Institute for Economic Research (DIW) agree that a speculative price bubble has burst in Germany. This bubble has led to a rapid decline in residential property prices, particularly in cities such as Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf.

DZ Bank also expects further declines in residential property prices in 2024, with average declines of 0.5 percent to 2.5 percent. Properties in poor locations or with high energy consumption are likely to perform weaker. Politics also plays a role, as uncertainty regarding the funding of renovation measures or new construction can weigh on real estate demand and slow the market recovery.

Another challenge is the current construction crisis, which threatens to miss the federal government's goal of 400,000 new apartments annually. According to DZ Bank's forecast, completion could even fall to 200,000 apartments by 2025.

The main cause of the fall in prices on the real estate market is the sharp rise in interest rates, which has made loans significantly more expensive. Many people can no longer or do not want to afford their own four walls, which means that banks' new business with real estate loans has collapsed. However, economists expect that the European Central Bank (ECB) will initiate a monetary policy change next year and lower its interest rates, which could cause property prices to rise again.

Overall, the development points to ongoing challenges in the German real estate market, which were triggered by speculative bubbles, political uncertainties and an ongoing construction crisis.