After years of high activity and spiralling house prices, the German property market is finally starting to cool off amid high interest rates and the cost of living crisis, figures from a recent study have shown. But while things are easing on the real estate market, the situation on the rental market remains tense. 

House prices fall in major German cities

Rising construction costs and the higher price tag on mortgages are beginning to have an effect on the housing market: demand for properties in Germany fell significantly in the second quarter of 2022, according to the online real estate portal Immoscout24. Overall, demand fell by 36 percent compared to last year, while the number of listings increased by 46 percent. Advertisements are also staying live for a lot longer than they did last year.

The dip in the number of people looking to buy a house meant that property prices fell in some of the biggest German cities. In major centres like Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart, asking prices fell by as much as 6,6 percent. 

Prices for single-family houses fell significantly across all major German cities apart from Berlin. In Cologne, prices fell by 4 percent within three months, and in Stuttgart by as much as 6,6 percent. Prices for apartments stagnated in Munich, Stuttgart and Hamburg, although they rose slightly in Berlin, Düsseldorf and Cologne.

Outside these major cities, the price rises have continued, but the rate - which averaged 2 percent in the second quarter of 2022 - is nowhere near as high as what has been seen in recent months and years. 

Inflated real estate prices are “being adjusted”

Immoscout24 described the stagnating and falling prices as being part of an “adjustment phase to the new economic reality”, as rising construction costs, high inflation and higher interest rates all make themselves felt. Real estate in Germany has for some time now been considered overvalued, and now the downturn appears to be coming into view.

“For the first time since the financial crisis of 2008, we are seeing such significant price corrections, especially in new-build condominiums and single-family homes in existing and new buildings,” explained Managing Director Thomas Schroeter. “Sellers are currently having a much harder time finding buyers.”

Schroeter said that this situation gave would-be buyers a lot more wiggle room to negotiate on price, but conceded that the rising interest rate was making home ownership a much more expensive prospect than it was six months ago. “The monthly instalments have doubled in price compared to last year, when low interest rates were the norm.” 

Rental market in Germany remains competitive

This change in the mortgage market has had a knock-on effect on the rental market, with Immoscout24 reporting a 48-percent increase in demand for rental apartments, which in turn has pushed up prices.

Data from the rental platform shows that listed apartments were on average 2,7 percent more expensive in the second quarter of 2022 compared to the first. New-build apartments were 3,6 percent more expensive, on average.