Property Bubble In Germany?

By Steve Hodl | My Path To Fire | 28 Feb 2022


Interest rates are beginning to rise in Germany, is this a sign of a change in direction or momentary blip?

If we look back at the interest rate developments for the last 5 years, we can see that in the last month there has been a sharp rise in the
interest rates to levels not seen since January 2019.  Chart from Interhyp.de

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If we look at the changes in prices for the different types of property over the same period, we have the following take-aways:

  • Commercial property started to stagnate from Q3 2020 most likely due to the affects of the corona lockdown measures in Germany that were among the most harsh in the world during 2021.
  • Residential property has continued its huge price increase trajectory

 

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This increase in interest rates has occured without any increase in interest rates by the ECB yet.  However, we can see that this move in interest rates could be related to the change in price for the 10Y Bund:

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It has been trading in a range from -0,5% to -0,1% and has now turned positve since the first time since 2019.  This could be related to the much higher inflation expectations in Germany and the European Union:

 

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As you can see, the inflation has started to increase rapidly since January 2021 for energy prices and this has caused inflation to increase to 5% in 2021 for the European Union according to Eurostat.  However, in some countries the increases are more rapid than others.  

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Here you can see the impact of December alone; we have a 26% increase in energy prices!   With the recent outbreak of war with Ukraine, the energy prices are likely to continue to increase further.  Will this put pressure on interest rates to increase and crash the housing market in Germany?

If you look at the news in Germany over the last few years, there has always been crash prophecies.  Should we listen to these warnings?  Even during the recent corona crisis, the prices continued to rise.  

So far interest rates look like they have changed direction from sitting at all time lows near 0%, but they are still at manageable levels.   Those who are now looking to refinance their properties, will have lower interest rates than before:

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The rates 10 years ago were 3%+ and now they can refinance at 2% or less.  Therefore i don't see any chances of a crash at present.

What do you think?

Thanks for reading.

 

This article was originally published on LeoFinance.io

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Steve Hodl
Steve Hodl

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My Path To Fire
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