Blog

Michael Derks, Chief Strategist

The boom in German house prices

19/03/12 @ 12:39 GMT by Michael Derks, Chief Strategist

There are always winners in every crisis. In this instance, one of the big beneficiaries of Europe’s sovereign debt and banking debacle has been German house prices, which have been moving steadily higher over the past couple of years.

Flush with deposits sent from Europe’s troubled south, financial institutions in the north have been desperate to lend to German households whose balance sheets are generally under-leveraged and in good shape. Exceedingly low interest rates are contributing to stronger loan demand, as are rising employment and the healthy growth in real incomes.

German property is also regarded as a safe-haven by high net worth investors not just in Europe but also in Asia. In Germany itself, many citizens still fear a return to hyperinflation wherein their cash becomes worthless, and as such see property as a hedge against this eventuality. Two other factors contributing to the pressure on house prices are the rapid growth in migration into major German cities from small towns and rural areas and the sluggish pace of new construction. Unsurprisingly, rental costs are also rising steeply.

A housing ‘boom’ is somewhat of an anathema to Germany, where there isn’t the culture of home ownership so apparent in Anglo Saxon economies such as the United Kingdom and Australia. Germans are much more likely to rent than to own. Also, house prices are decidedly inexpensive, as Germany essentially missed out on the surge in residential property values which took place in many advanced economies in the decade from the mid-1990s until around 2006.

Desirable neighbourhoods in some of Germany’s most popular cities such as Berlin, Hamburg and Munich have experienced a jump in property prices of more than 10% over the past year. In contrast, house prices in the likes of Spain, Greece and Portugal all tumbled by double digits in percentage terms in 2011.

For their part, both the Bundesbank and the ECB are already on heightened alert, aware of the danger to the German economy should prices continue to climb sharply.

Tags: Germany

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. FxPro does not take into account your personal investment objectives or financial situation. FxPro makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any employee of FxPro, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of FxPro. This communication must not be reproduced or further distributed without the prior permission of FxPro.

feedback
chat vivo
chamada
UP