Interest rates have almost tripled in the past few months. Real estate experts expect a turnaround on the market due to the increase in the second quarter.

After more than ten years of real estate boom in Germany, experts expect a turnaround on the housing market.

So far, there have been pull-forward effects from people who wanted to buy real estate quickly before building interest rates continue to rise, said Michael Voigtländer, a real estate expert at the German Economic Institute (IW). “In the second quarter, however, we should see a turnaround in the real estate market,” he says. “It is clear that with rapidly rising interest rates, more and more groups of buyers are falling out of the market.”

The picture is also changing for large investors. “They still want to buy, but at lower prices given the higher interest rates.” However, it is also conceivable that prices will stagnate for a longer period of time until the market has found equilibrium again through rising incomes.

Historically, interest rates are still low

Mortgage interest rates have risen sharply in the past few months. According to the Frankfurt FMH Finanzberatung, interest rates for ten-year standard loans have almost tripled since December from 0.9 percent to around 2.5 percent most recently – and the trend is rising.

From a historical perspective, building interest rates are still relatively low, wrote Stefan Mitropoulos, an economist at Landesbank Helaba. Nevertheless, the rise in interest rates should not be underestimated. “The significantly higher financing costs are likely to dampen the demand for residential property overall and steer it more towards the more affordable surrounding areas of the big cities.” As a result, the price increase on the housing market should “slow down noticeably” over the course of the year.

Experts at Deutsche Bank also expect that the upward cycle on the housing market is nearing an end and, according to their models, will probably end in 2024. Real estate expert Jochen Möbert expects a “modest price correction”, as stated in a study.