The decline in housing prices in Germany in2023, but the rental growth will remain.

Housing prices in Germany will decrease by more than5% this year and remain stagnant in2024, according to a survey conducted by Reuters real estate analysts. They also predict that rent will become even less affordable as more potential buyers opt out of the expensive market.

Housing in the largest European economy, which had been gradually increasing in price, has sharply risen in recent years due to low borrowing costs, is now going through its biggest crisis in decades.

In the first half of 2023, the number of building permits for residential houses decreased by 27%, and several developers filed for bankruptcy.

The average cost of housing increased by 25% during the COVID-19 pandemic, and high interest rates along with rising living costs in a struggling economy have forced many to rent homes while waiting for real estate prices to drop.

According to a Reuters survey conducted from August 14 to 30 among 14 real estate experts, the average housing price is expected to decrease by 5.6% over the course of 2023, closely aligning with the results of a survey conducted three months ago. All but one predicted a decline in prices this year.

“We do not expect a significant recovery in the German real estate market in the near future,” said Carsten Brzeski, global head of macro research at ING, adding that the anticipated slight correction, followed by gradual growth next year, “will lead to continued low affordability overall.”

The average housing price dropped by 6.8% in the first quarter compared to the same period last year, marking the largest decline since the start of official statistics over twenty years ago.

“Although interest rates on loans are likely to be lower next year than this year, they still won’t be as low as during the period of zero interest rates set by the ECB,” said Brzeski.

According to a Reuters survey, the European Central Bank will raise rates one more time this year, bringing the deposit rate to 4.00%, and a decrease is not expected until the second quarter of next year.

Analysts who answered the additional question were divided into two equal groups regarding whether the accessibility of purchasing for first-time homebuyers would improve.

Considering that the availability of purchases is expected to improve only slightly, despite the forecast of falling housing prices, pressure on the rental market may increase.

All 13 strategists who responded to the additional question stated that the already rising average rental rates will either increase significantly or slightly for the remainder of 2023.

Eleven out of 14 respondents said that the availability of rentals will worsen next year, while three stated that it will improve.

“Rental rates are currently under strong pressure... a significant portion of potential buyers, who can no longer afford to purchase property due to high interest rates, are increasingly turning to renting apartments,” said Sebastian Schneider, senior real estate analyst at BayernLB.

"Due to a lack of new construction, rental and sale housing will remain a scarce commodity."