The uncertain game of price forecasts
Nobody knows when property prices will bottom out. The Bundesbank remains ambiguous: Various estimates indicate that German property is still overvalued by 10%, 15% or 20%, depending on the model. So, is there now a threat of a further price slide? Economists and statisticians do not want to predict it that precisely. There is, therefore, a "certain" risk. That is kind of vague. Wouldn't "uncertain" be more to the point?
Even the measurement of price trends for heterogeneous goods such as property is fuzzy. The Federal Statistical Office, the VDP banking association, credit platform operator Hypoport, the Kiel Institute for the World Economy and the Bundesbank, based on data from the analysis company Bulwiengesa, all report falling prices, but the results differ in detail. It is even more challenging to determine when recovery will set in.
In hindsight, however, everything seems clear: Falling interest rates, rising incomes and a high level of confidence in concrete gold – among other changes – have carried the boom into 2022. But what does the formula for future development look like, and how will variables such as energy efficiency and heating costs, demographic change and the labour market, the economy and construction activity, interest rates and expectations develop? Just a slight shift here, a new weighting there, and the forecast looks completely different. This time, as well, the development will only become clear afterwards.
Where is price erosion looming?
Forecasters have different opinions. While the Bundesbank also identifies an overvaluation in cities, the credit broker Dr. Klein expects prices to fall more sharply in rural and structurally weak regions. Where is the strongest "correction" imminent? That is certainly uncertain!
Uncertainty has its price. In commercial property financing, banks are coming under pressure due to gloomy prospects and high-risk provisions. In residential property financing, banks have bought stability with a long fixed interest rate so that high loan default rates – this is a bold prediction – are not on the horizon. At the same time, banks will be slow to realise the rise in interest rates from 2022 in their lending business. Unfortunately, it is uncertain when the home loan business will pick up again. Not only are prices subject to a "certain risk of corrections", but also forecasts.
