German House Prices Are Climbing: What's Happening?
It’s becoming increasingly difficult for families to purchase homes in Germany. For the first time in nearly two years, home prices in the country have gone up for two quarters in a row. Is this the start of fast price growth again?
Prices Are Rising
Residential property prices in Germany rose 3.8% in early 2025. This compares to the same time last year. A German banking group (BVR) expects prices to rise 3.2% this year. They also predict a 3.1% rise in 2026. Experts agree that these price increases mean the price drop from late 2022 is over.
Why Homes Cost More
Several things cause prices to rise:
- Insufficient Housing: There is a significant shortage of housing. New housing construction has slowed a lot. Demand in cities like Berlin is very high. Experts estimate that only 64% of the needed homes will be built in 2025. This number might drop to 58% in 2026.
- High Demand: Many people are eager to purchase homes, particularly in major cities.
- Stable Loans: Mortgage rates are steady now.
- Rising Rents: Higher rents prompt people to consider buying instead of renting.
- Interest Rates: This is the biggest reason. When interest rates drop, mortgage rates become more affordable. More people want to buy homes, and this pushes prices up.
Here’s how it works: Following the 2008 financial crisis, very low interest rates led to a surge in home prices in Germany. This ended when the European Central Bank (ECB) raised rates in 2022-2023 to fight rising costs. German home prices fell almost 7% in 2023. But the ECB cut rates in mid-2024. Mortgage rates became the lowest in two years. This brought many buyers back to the market.
Where Prices Increase Most
Prices are rising faster in some areas:
- Big Cities: In Germany’s seven largest cities (Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart, Düsseldorf), apartment prices rose 3.8% over one year. They went up 2.4% from the prior quarter.
- Other Large Cities: Big cities not among the top seven saw even bigger jumps. Apartment prices in the area rose 6.1% in one year.
- Densely populated rural areas also experienced price increases.
What’s Ahead?
People in big cities often wish they had bought property years ago. German home prices began to rise significantly after 2010. Before that, they were flat or fell for twenty years. Since 2010, prices in Germany’s largest cities have gone up by over 33%. This is significantly faster than the growth in incomes.
The banking group (BVR) believes home prices will continue to rise. They expect 3.2% in 2025 and 3.1% in 2026.
It’s getting very hard for many people to buy a home. Home prices have grown much faster than people’s earnings. But if you can still buy a home, its value will likely continue to rise.
