German residential real estate saw its largest price drop in 60 years in 2023, impacting apartments, single-family homes, and multi-family houses.
This emerges from the latest update of the German Real Estate Index (Greix) with data for Q4 2023, in which the price decline did not continue to the same extent.
Apartments fell 8.9%, single-family homes 11.3%, and multi-family homes 20.1% compared to the previous year.
This follows a historic price surge since 2009, with prices tripling or quadrupling before the sharp downturn began in 2022. The pace of decline slowed in Q4 2023, with apartment prices going down by 0.6% compared to Q3, the price of single-family houses dropping by 1.2%, while multi-family houses have seen a 4.7% price increase.
Experts view the correction as healthy after excessive price increases and changing interest rates. Inflation-adjusted price changes are now minimal, suggesting further stabilization.
Moritz Schularick, president of the Kiel Institute, commented: ‘Given the exorbitant price increases over more than 10 years and a new interest rate environment, a phase of price correction is entirely appropriate and not economically alarming to the extent we've seen so far. It might be that we are seeing the beginning of a stabilization in real estate prices. However, the coming quarters will show this for sure. At least the behavior of the central banks would suggest this, from which no further interest rate hikes and foreseeable interest rate cuts are expected. Thus, real estate financing should become cheaper again, thereby stimulating demand.’
Apartment prices in Germany's major cities are experiencing a diverse range of trends, with some seeing continued declines and others showing signs of stabilization.
Cologne and Stuttgart experienced the steepest price drops at 3.6% compared to the previous quarter, while Berlin (-0.4%), Frankfurt (-0.2%), and Hamburg (+0.2%) have largely plateaued with minimal changes.
Munich is the most expensive city in Germany with an average price of €8,600 per m2, significantly ahead of Frankfurt at €5,300, while Düsseldorf, Stuttgart, and Cologne share the title of most affordable cities at €4,200 per m2 each.
However, information on average prices for Hamburg and Berlin is unavailable limiting a complete picture.
The Greix is a joint project of the local expert committees (Gutachterausschüsse), ECONtribute, and the Kiel Institute. The index, which currently covers 19 cities, is based on transaction datasets from the expert committees, which rely on notarial-certified contracts.