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German housing winter
Strong demand, insufficient building activity and the unchanged interest rate environment still argue in favour of a continued rise in house prices, say the Helaba researchers, even if individual indicators are suggesting the opposite.
The latest Real Estate Report from Frankfurt-based landesbank Helaba sees little change on the German housing market over the next twelve months, with housing construction continuing to lag demand in the larger cities.
Strong demand, insufficient building activity and the unchanged interest rate environment still argue in favour of a continued rise in house prices, say the Helaba researchers, even if individual indicators are suggesting the opposite. While construction activity continues to expand, it is still likely to lag behind demand next year. Using the latest data available, the population in the seven largest cities grew by 113,000 over the last twelve months, but only 30,000 housing units were completed. With an average household size of less than two persons, the gap between supply and demand continues to widen, and is reflected in price rises in those cities.
The researchers also point to low mortgage interest rates and the lack of investment alternatives as further grounds for continued support, despite regular warnings from the Deutsche Bundesbank of overheating in individual subsectors. Conservative financing practices and only a moderate rise in overall credit volume for housing financing over the past four years continue to mitigate against the bubble-developing argument, they say.
The Helaba researchers also comment on the lack of a consistent picture being presented by a variety of different price indicators. Some suggest an end to the uptrend, others to the rate of increase slowing down, while yet others point to an unchecked upward price trend. The more frequently the indices are updated, the greater the volatility in that index’s readings, they remind us. The bank’s own view is that the uptrend will continue through 2015, albeit somewhat slower next year. Individual cities, depending on supply and demand conditions, may see an end to the upward trend, while in certain market segments, such as the very luxury end, the zenith has probably already been reached, they say.
Meanwhile the Europace House Price Index EPX, which we follow closely at REFIRE based as it is on actual prices transacted, rose in November by 0.13% on the previous month, to 117.24 points on its own proprietary scale. The sub-index for private apartments (condominiums) rose by 0.56% to 115.55 points, almost exactly where it was one year ago (end-November 2013). Existing single- and two-family homes held stable over October at 109.09 points, but show a rise of 4.52% over a 12-month period. For new-build single- and two-family homes the EPX index dipped slightly, for only the second time this year.
Thilo Wiegand, the CEO of Europace commented, “Even if we’re seeing a momentary dip in the EPX sub-index for single- and two-family homes, the fact is that demand for residential housing is still not being met. We see no trend reversal in any segment of the housing market. The ongoing low interest rate environment simply makes investing in property still too attractive.”
The EPX Index is measured monthly by Hypoport subsidiary Europace, and measures transactional data from properties actually financed across the Europace electronic matching platform, which covers about 15% of all real private real estate transactions in Germany. The index was set for all sub-categories (apartments, new homes, existing homes) at 100 in August 2005
