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Expected drop in prices: mood changes on the housing market | money

The mood among real estate experts has changed due to the sharp rise in interest rates, high construction costs and the weak economy.

According to a report from the German Economic Institute (IW) for the industrial association ZIA, released Tuesday, many companies feared that the real estate market might change.

“There are many indications that the market is entering a recession and that a new real estate cycle will be announced.”write the authors.

The IW-calculated real estate mood index fell from 30.7 points in the first quarter to minus 5.5 points in the second quarter and therefore fell negative for the first time since it was released in 2014.

“This means that the mood in the executive plans of German real estate companies is significantly worse than in the Corona pandemic,” the IW said. Managers and executives of around 1,200 real estate companies were interviewed, of which 400 companies regularly participate in the study.

In the residential segment, the real estate climate fell particularly modestly.

The main argument is the increase in building interest, which makes apartments and houses less affordable for families. “Lower accessibility could lead to a sustained drop in prices and demand,” the IW said. FMH-Finanzberatung has calculated that for the first time since 2012 the average effective interest rate for a ten-year loan has risen above the 3% threshold.

The sentiment index also fell for project developers, retail and office real estate. After the office market robustly weathered the pandemic, many businesses feared significantly lower demand and lower prices and rents.

According to the report, there is also bad news for tenants: 80 percent of the real estate companies surveyed expect rent increases for their properties. The main reason is high inflation.

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