In the two previous year's forecasts, we were already assuming continuously falling growth rates, which should lead to an end to the real estate boom and a slow reduction in the sometimes high valuations. In a real estate market in a state of shock, the current forecast shows that in the residential segment, purchase prices and rents will decline only slightly by comparison.

Residential real estate reacts relatively slowly and, moreover, cannot be substituted. Construction activity is permanently too low. Fixed-interest periods remain high and mortgages are increasingly being granted with higher equity requirements. The latter supports both our thesis of slower growth and the low probability of major corrections.

The chart of the month shows: After the purchase prices for newly constructed apartments have risen continuously by an average of over 5% p.a. since 2012, we expect lower growth in the coming years. Declining income due to the loss of bonuses, short-time work or unemployment and an uncertain economic environment will bring the high growth rates to an early end in 2020.

The consequences of the current year will still be felt in 2021. The extremely low interest rates, the most important factor in the price increases of recent years, will disappear in the next half decade. In the past eight weeks alone, the interest rates for ten-year loans have risen significantly.

The positive framework conditions are reversing themselves and slowing down the real estate market.

The very high charges in the already overvalued cities are having a price-dampening effect. However, it should be noted that cities and regions with high demand will continue to benefit from rising prices over the next five years. However, demographic change will exacerbate regional disparities in future development. Many class A, B and C cities will continue to have high demand, as both construction activity is too low and the number of households will continue to rise in the coming years.

Note: Those who need detailed and regionally differentiated data will find the respective forecasts in RIWIS. The online platform for real estate market data contains all the relevant information needed to conduct dedicated analyses and develop strategies.

Contact person: André Adami, Head of Division Residential for North, West and East Germany at bulwiengesa, adami [at] bulwiengesa.de