Data published by the Federal Statistical Office (Destatis) showed that in Q1 the prices of residential property fell by an average of 5.7% per annum. It was the 6th decline in a row. Meanwhile, compared to the 4th quarter of 2023, residential property prices were down 1.1% on average. House prices are now some 14% below their peak. Last year, home prices fell by 8.4%, the sharpest drop since the beginning of the statistical records in 2000. Economists expect prices will continue to fall in 2024 as a whole, with a decrease of 2% likely, bouncing back to 2% growth only in 2025.
High financing and construction costs continue to negatively affect Europe's largest economy, triggering the most severe property crisis in the country in decades. As for the outlook, economists expect mortgage rates to hover around the current level until the end of 2024. Any significant downside shift would require the ECB to cut interest rates much more than markets are currently pricing in. Despite the fact that this year is projected to see the fastest wage growth in a decade, this will probably not be enough to significantly reduce the burden of high financing costs for households. Thus, the availability of residential real estate purchases will improve very gradually this year, which makes a strong upturn in the entire market unlikely.