Average German house price to rise 3.5% in 2025 and 3.0% in 2026 - poll

Average German house price to rise 3.5% in 2025 and 3.0% in 2026 - poll

According to a recent survey of property experts conducted by Reuters, the German housing market is expected to show a moderate recovery in the coming years, with average house prices projected to rise by 3.5% in 2025 and 3.0% in 2026 [1]. However, this optimistic outlook is not without its challenges.

Despite the expected recovery, there is a significant risk that house price growth may undershoot these forecasts. This concern is driven by a range of factors, including economic policy uncertainty surrounding the upcoming German elections, potential impacts from U.S. tariff policies, and a decrease in the number of new homes being built due to red tape, high construction costs, and other constraints [1].

The German housing market has experienced a tumultuous few years, with home prices soaring during the pandemic before falling sharply due to a surge in borrowing and construction costs. As a result, prices have fallen by about 12% since their peak in mid-2022, and they rose only slightly by 0.3% in the third quarter of 2024 [1].

The European Central Bank (ECB) has responded to the market downturn by reducing its deposit rate by 125 basis points since April, and interest rate futures suggest that the ECB may implement two to three more cuts this year [1]. This monetary easing is expected to provide some support to the housing market, but it may not be enough to offset the challenges facing the market.

Moreover, the number of new homes being built in Germany is expected to decrease significantly this year, further constraining supply and potentially putting upward pressure on prices [1]. This decline in new construction is due to a range of factors, including red tape, high construction costs, and other regulatory hurdles.

Despite these challenges, some analysts remain optimistic about the prospects for the German housing market. For example, Carsten Brzeski, the global head of macro at ING, notes that a decline in consumer confidence due to economic policy uncertainty and potential impacts from U.S. tariffs policies may be having a negative impact on investment decisions and house price growth [1]. However, he also notes that once these uncertainties have eased, there may be a stronger recovery in the housing market.

In conclusion, while the German housing market is expected to show a moderate recovery in the coming years, there are significant risks that house price growth may undershoot forecasts. These risks include economic policy uncertainty, potential impacts from U.S. tariffs policies, and a decrease in the number of new homes being built.

References:
[1] Reuters. German house prices to climb 3.5% this year, but risk is for weaker rise - poll. February 21, 2025. https://www.marketscreener.com/news/latest/German-house-prices-to-climb-3-5-this-year-but-risk-is-for-weaker-rise-49126019/