After nearly two years, German residential real estate prices have finally started to climb again across all property types (apartments, single-family and multi-family homes) in Q2 2024.
This positive shift is revealed by the latest update of the German Real Estate Index (GREIX) which provides information for 20 cities and regions, based on real estate transaction data (notarized sales prices) from local expert committees.
Apartments and single-family homes saw modest increases of 2.4% and 2.0% respectively compared to Q1. Multi-family homes experienced a rebound of 4.4%, recovering from a sharp decline in the previous quarter. However, due to limited data, price fluctuations in this segment are unpredictable.
Importantly, real estate values are now outpacing inflation for the first time in two years. While prices are still down compared to the same period last year, the rate of decline is slowing for the third consecutive quarter, suggesting a market stabilization.
Despite these positive signs, the number of property transactions remains low, at about 60% of pre-pandemic levels. The situation is even worse for new builds, with transaction volumes at only 35% of the pre-pandemic average.
Jonas Zdrzalek, real estate expert at the Kiel Institute for the World Economy, commented: ‘The turnaround in the real estate market has begun. The great uncertainty of the past few years and months is clearly subsiding and the prospect of falling interest rates is stabilizing the market. Investors appear to have regained confidence in the long-term appreciation of real estate. In addition, the slump in new construction is tightening supply and thus supporting price momentum.’
Germany's seven largest cities are showing signs of stabilization in the apartment market. Compared to the previous quarter, most cities experienced price increases or maintained their values after previous upward trends.
Hamburg (+4.3%) and Frankfurt (+3.7%) led the pack with the most significant price jumps, followed by Düsseldorf (+2.2%). While Stuttgart saw a modest increase (+0.6%), Cologne experienced a slight dip (-0.6%). No Q2 data was available for Berlin and Munich.
Beyond Germany's top seven cities, apartment prices are also on the rise, though market fluctuations are more pronounced. This instability is likely due to fewer property transactions.
The newly included Rhein-Erft-Kreis, located near Cologne, saw a 4.6% increase in apartment prices compared to the previous quarter. Münster stands out among Germany's mid-sized cities with a price surge of 5.6%. This follows a strong performance in Q1, resulting in an overall 10% increase in apartment values for H1.
If the current upward trend in German real estate prices continues, it marks the end of a nearly two-year market correction. During this downturn, overall property values across the 20 cities and regions tracked by the GREIX fell by approximately 14%. However, due to high inflation during this period, the actual loss in purchasing power was significantly greater, exceeding 20%.
Stuttgart experienced the most significant price decline, with house values plummeting over 20% from their peak. When adjusted for inflation, this represents a loss of nearly 30% in purchasing power. In contrast, the price drop for newly built apartments was less severe, falling by only 6% compared to the 16% decline for existing apartments.
The GREIX is a publicly funded initiative developed by the Bonn-Cologne Cluster of Excellence ECONtribute (supported by the German Research Foundation) and the Kiel Institute for the World Economy.
