Rising home prices in Germany explained
In a persistent trend that's making homeownership a distant dream for many, residential property prices in Germany are on the rise, with the country's largest cities leading the charge. According to the National Association of German Cooperative Banks (BVR), property prices are expected to increase by 3.2 percent in 2025 and 3.1 percent in 2026.
The upward trajectory of property prices can be partly attributed to a chronic housing shortage and slow construction of new housing. As a result, cities like Berlin, Munich, Frankfurt, and Leipzig, have seen the steepest price increases.
Berlin, Munich, and Frankfurt, Germany's largest cities, have experienced the most significant price increases, with strong demand pushing prices up continuously. Frankfurt, in particular, has seen apartment prices rise by 3.2 percent year-over-year, and single-family homes grow even more sharply by 4.7 percent. The city's central apartments now average around €6,937 per square meter, marking a 79 percent increase over the past decade.
Munich, Germany's most expensive city, continues to see consistent annual price increases between 2 and 4 percent. Leipzig, while not among the largest cities, stands out for its fastest projected residential property price growth, with a compound annual growth rate (CAGR) of 4.6 percent expected through 2030.
The underlying reason for the persistent growth in property prices is the chronic housing shortage and slow construction of new housing. The European Central Bank's (ECB) move to cut rates in mid-2024, which caused mortgage rates to drop to their lowest levels in two years, has only served to fuel buyer and investor interest in the market.
However, the trend has been disrupted by the ECB's decision to raise interest rates in 2022-2023 to combat inflation. This led to a sharp correction in the German property market with nominal prices falling by nearly 7 percent in 2023.
Despite government efforts to address the shortage, such as the "construction turbo" program, which aims to accelerate planning and approval procedures, only 64 percent of housing demand will be met in 2025, with the figure expected to fall to 58 percent in 2026. Rising rents are also fuelling the demand for homeownership.
The dream of owning a home has become next to impossible to realize for many people in Germany due to the rising property prices. However, for those who can still afford to get on the property ladder, the chances are that the value of their home will continue to rise.
In conclusion, the German housing market is witnessing a persistent rise in residential property prices, particularly in its largest cities. The trend is driven by urban migration, housing shortages, and favourable economic conditions supporting strong demand. Despite government initiatives, the supply-demand imbalance remains unresolved, making homeownership a challenging prospect for many.
Investors and prospective homeowners in Germany's largest cities, such as Berlin, Munich, and Frankfurt, should anticipate continued growth in real-estate prices, given the projected increases of 3.2% in 2025 and 3.1% in 2026. On the contrary, for those striving for homeownership, the finance aspect becomes more daunting, as mounting property prices and rising rents further strain their budgets.
