interest rate development
Since the start of the global financial crisis at the end of 2007, interest rates have fallen continuously since 2008 and the ECB's key interest rate has remained at 2016% since 0. In the past, the low interest rate, especially in the metropolitan areas, had created a huge demand for real estate, while the supply side stagnated or even decreased. Although there were still standard sales due to divorce or inheritance, those who could afford it did not sell their property because significant increases in value were expected every year. On the other hand, the zero interest rate policy meant that banks did not grant interest on credit balances, and at times even had to pay negative interest on balances. A 5-10% annual increase in purchase prices was the norm, so why sell?
Interest rates have been rising rapidly for nine months. While the average interest rate was 2021% in December 1,4 (full financing, without additional costs), it was 2022% in October 4,4). Specifically, this means that buyers who were able to finance a €2021 apartment for €400.000 per month in December 1.361,17 paid a rate of €2022 in October 2.003,80. In ten months, the monthly charge increased by 47,2%, i.e. €641. (Source: Mockenhaupt GmbH & Co. KG). It is difficult to say how interest rates will develop further, but it is unlikely that the rise will continue in the medium term as it has over the past nine months.
Purchase price development
Seen over the last ten years, real estate prices have developed rapidly, increases of around 10% pa were the norm in metropolitan areas. Currently, the time of exorbitant price increases seems to be over, they remain at a high level in metropolitan areas or are already falling slightly. The location of Bonn and the areas of the Rhein-Sieg district close to the city have the advantage that the forecasts for the next few years are still positive, since strong immigration movements are still to be expected, but on the other hand far too little new living space is being created.
How the price development moves in the medium and long term depends on various factors. The market economy principle of supply and demand undoubtedly has an enormous influence. Due to the enormous increase in interest rates in the last nine months, the number of potential buyers will steadily decrease because it will be impossible for average earners to obtain financing.
There is one more point. Many contracts that were concluded in the past with low interest rates and sometimes "pointed on a button" are expiring and have to be extended at significantly worse conditions. Here the effect could occur that real estate owners simply can no longer afford their house or apartment and will be forced to sell it.
If demand falls and supply rises, this will ultimately also affect sales prices, which will in all probability fall in the future. It is difficult to predict when the tipping point will be reached, ie when supply will exceed demand again, since many macroeconomic factors have to be considered in addition to pure interest rate increases. In addition, the imponderables of inflation, the energy crisis and the further course and consequences of the Ukraine war are far from foreseeable.
When to sell
Some real estate owners who have been enjoying the permanent increase in value of their real estate for years, who saw their real estate as a high-yield investment and were not forced to sell it for economic reasons, are slowly becoming nervous. Will selling prices remain at the current level or maybe even fall? Various factors play a role in this. Sellers of properties in need of refurbishment will face problems as potential buyers are deterred from extensive and increasingly expensive refurbishments and modernizations and the lack of tradespeople. The development of material prices in construction also play a role here. In order to still find buyers here, for better or for worse, a reduction in the purchase price will have to be considered. Properties in good condition and in good locations will continue to find buyers, although demand will fall. But the same applies here: the times of “moon prices” are over, especially when the supply continues to increase and buyers have alternatives again. Ultimately, the development would be welcome if supply and demand were to balance out again.
B. Viebach