A new study has found that house prices are falling in almost all major German cities - in places by more than 10 percent year-on-year - as demand across the German housing market plummets. 

House prices drop by more than 10 percent in major German cities

The average sale price of an owner-occupied apartment between July and September 2023 fell by 10,5 percent compared to the same period in the previous year, according to a new report from the Kiel Institute for the World Economy (IfW). Prices for detached and semi-detached houses were also significantly down - by 12,1 percent and 24 percent within a year, respectively. 

According to the report, prices for owner-occupied flats dropped in almost all of the biggest cities in Germany. Year-on-year, sale prices were down 17 percent in Düsseldorf, 15 percent in Stuttgart, and more than 10 percent in Frankfurt, Hamburg and Munich. 

The quarter-on-quarter results also show drops - in Frankfurt, sale prices fell by 1,6 percent between quarters two and three of 2023. In Stuttgart, they fell by 1,9 percent and in Berlin they fell by a more moderate 0,8 percent. Düsseldorf showed the strongest decline at 6,6 percent. 

Outside of the seven biggest cities, dips were also apparent in Leipzig (-4 percent), Duisburg (-4,4 percent), Münster (-6,2 percent) and Erfurt (-9,2 percent). However, marked increases were felt in Potsdam (+4,2 percent) and Chemnitz (+5,2 percent). 

Rising interest rates make buying a house less affordable

According to the IfW, the main reason for the turnaround on the housing market is rising interest rates, which have made mortgages significantly more expensive. Coupled with the high inflation rate, which is reducing purchasing power, this is making it harder for people to consider buying a house. 

Overall, a third fewer sales were recorded across all types of housing in the third quarter of the year, compared to the same time last year. Compared to the average between 2019 and 2021, sales fell by 50 percent. 

"The crisis on the German property market is continuing," said IfW President Moritz Schularick. "Interest rate hikes have triggered a clear downward trend reversal on the German housing market, and the bottom is not yet in sight."

"The falling transaction figures indicate that only a few sellers and buyers are coming together at the current prices,” he added. “This is bad news, especially with regard to the new construction business - for the economy, but also for Germany as a business location, which urgently needs new living space in the cities in order to be attractive for locally mobile skilled workers."