How will real estate prices develop in 2022?

Will demand for real estate remain as high this year as it was last year? More and more high earners are investing their money in real estate. However, the US Federal Reserve is ending its loose monetary policy due to high inflation. If the European Central Bank (ECB) follows suit and raises its key interest rate, mortgages could become more expensive. Demand could then fall.

Even last year, the coronavirus pandemic had little impact on the residential real estate market. Prices continued to rise rapidly , not least because low or even negative interest rates led more and more high earners to invest their money in real estate.

Purchase prices and income

According to a recent analysis of market data by the real estate financing consultancy Hüttig & Rompf, owner-occupiers paid an average of €552,000 for a property in the second quarter of 2021. Investors invested an average of €357,000. The purchase price thus increased by 16 percent and 19 percent, respectively, compared to the same quarter of the previous year. The incomes of property owners rose similarly during the same period. Owner-occupiers earned ten percent more and investors 16 percent more compared to the period under review.

Is a turnaround coming?

Some real estate experts, however, see signs of a trend reversal. In some major German cities, rents appear to have reached a ceiling. A study by the consulting and analysis firm F+B revealed that rents for new leases fell slightly in 23 of the 50 most expensive German cities between the second and third quarters of 2021. Furthermore, for the first time in 14 years, vacancy rates also rose slightly. This is according to the vacancy index from the research and consulting institute Empirica.

Are interest rates rising?

The US Federal Reserve announced its exit from its loose monetary policy back in December 2021. This represents a change of course. Due to the currently high inflation, this could happen even faster than previously expected. The European Central Bank (ECB) has not yet followed suit. However, rising inflation is also clearly noticeable in Germany. It could only be a matter of time before the ECB also raises its key interest rate.

Is the supply increasing?

This would also cause interest rates on mortgages to rise. Fewer people would then be able to afford a property, which could lead to a drop in demand. At the same time, it could become more difficult for property owners to service their refinancing. They might then be forced to sell their properties. The supply of properties would thus increase again. This, in turn, could cause property prices to fall.

However, a reliable forecast cannot yet be made. Further developments remain to be seen.

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Notes

For the sake of readability, this text uses the generic masculine form. Female and other gender identities are explicitly included where relevant to the statement.

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

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