Anyone thinking about buying a property usually has one key question: when is the right time? People are usually prepared to invest money in an apartment or house that meets their own requirements and needs. But those who act wisely are looking for the right time. The real estate market is characterized by a certain dynamism - sometimes prices fall and sometimes they rise. In this blog post, we explain why you should invest in a property now.

Real estate prices have fallen sharply recently

First of all, it makes sense to take a look at how the real estate market has developed in recent years. Property prices have fallen sharply in the wake of the interest rate turnaround. According to the Federal Statistical Office, residential property prices in Germany fell by an average of 10.2% in the third quarter of 2023 compared to the third quarter of 2022. According to Destatis, this was the sharpest year-on-year fall in residential property prices since the time series began in 2000, after the sharpest declines to date had already been recorded in the first quarter of 2023 (-6.8%) and the second quarter of 2023 (-9.6%).

Experts see bottom forming

So should prospective buyers continue to wait and see - in the hope that residential property prices will continue to fall? Not necessarily, as many real estate experts believe that property prices are now slowly starting to rise again. As the results of the "IW-Wohnindex" study by the German Economic Institute (IW) show, property prices were already on the rise again by the end of 2023. Purchase prices for apartments rose by 0.8% between October and December compared to the previous quarter, while prices for detached and semi-detached houses increased by 0.6% in the same period. The IW experts assume that the market has bottomed out. For this year, they expect interest rates on property loans to continue to fall, rents to rise and incomes to develop positively - leading to a normalization of the property market.

So what should (future) real estate buyers be prepared for? Firstly, the fact that prices for residential properties are unlikely to fall any further, but will slowly rise again. Anyone looking to buy a property should therefore not wait too long, but take the opportunity to buy now with the chance of benefiting from an increase in value in a few months' time.

Rents are rising - especially in the metropolitan areas

It is also good to know that rents are rising again, making an investment worthwhile for landlords in the long term: as the experts at the IW found out, this applies above all to new contract rents: They were around 5.3 percent higher in the fourth quarter of 2023 than a year earlier. Within two years, new contract rents have risen by an average of 8.7% across Germany. Rents rose in Germany's largest cities in particular. At 9.2 percent, rents in the capital rose the most compared to the previous year. Rents also rose sharply in Leipzig (7.8 percent) and Munich (7.3 percent). Since the beginning of 2022, rent increases in these three cities have also been the highest at 17% in Berlin, 12.2% in Leipzig and 10.5% in Munich. According to the study, rents in Kölln have risen by 9.5 percent.

Federal government misses housing construction target

The fact that the market has recovered relatively quickly could also be due to the fact that there is still strong excess demand - according to estimates, there is still a shortage of around 700,000 apartments in Germany. Although the German government planned to counteract this with the construction of 400,000 apartments per year, it has so far fallen well short of this target. Rising interest rates and construction costs have caused the number of completed apartments to plummet.

Housing construction companies complain about poor order situation

According to a survey by the Leibniz Institute for Economic Research at the University of Munich, the business climate in the residential construction sector is at an all-time low. According to the institute, the climate indicator was only at -56.8 points in December 2023 after -54.4 in the previous month. This is the lowest level since the survey began in 1991. Although interest rates for construction financing have recently fallen again, there is still no relief in sight. 22.1% of the companies surveyed complained about canceled projects in December and 56.9% about insufficient order backlogs. The year 2023 was a difficult year for residential construction and new business remained below the level of previous years. This is a consequence of higher construction and interest costs as well as weaker funding opportunities.

Number of newly built apartments could fall further

At 295,300, the number of completed apartments in 2022 was already around 27% below the average for the years 1950 to 2022, according to the Federal Statistical Office (Destatis) based on historical time series. The Leibniz Institute for Economic Research at the University of Munich expects a further decline in residential construction in Germany. According to the institute's calculations, around 245,000 apartments were built in 2023. The institute expects 210,000 apartments to be completed in new residential buildings this year and only 175,000 new apartments in 2025. The experts at the Leibniz Institute assume that, together with the remaining completions, around 200,000 residential units will be built in 2025.

Conclusion:

Anyone thinking about buying a property should take advantage of the currently still favorable buying situation to purchase a residential property. It can be assumed that the housing shortage will persist in the coming years and rents will continue to rise.