Was buying real estate really easier in the 1980s than it is today? Affordability Index provides surprising insights. - WiWo

Was buying real estate really easier in the 1980s than it is today? Affordability Index provides surprising insights. - WiWo

According to a report from amp2.wiwo.de

The analyzes by Michael Voigtländer, economist at the German Economic Institute in Cologne, show that the best time to buy real estate was in the third quarter of 2016. Affordability was highest there, meaning that buying property was cheaper than at other times. Affordability has since moved sideways and deteriorated significantly since 2021. In the second quarter of 2023, the index was back to the level of the mid-2000s.

Interest rate developments are a decisive factor in the affordability of real estate. Looking back, buying property in the 1980s and 1990s was less affordable than it is today, even though prices and interest rates were higher. This is because inflation fell and incomes rose during this time. Inflation led to a reduction in interest rates, which made real estate more affordable for many citizens.

The analysis also makes it clear that political and social conditions have a significant influence on the affordability of home ownership. This includes access to equity, additional costs of acquisition, and the timing of earning income. Nevertheless, the index shows that affordability is relatively good in the medium term and is improving again in the current period as incomes rise and prices fall slightly.

It is likely that affordability will improve even further when interest rates fall again. Given falling inflation rates, this is likely. However, it is not yet possible to predict how quickly this will be reflected in falling financing interest rates.