Currently, there is one topic that concerns people around the world: the corona crisis and its impact on all possible areas of life. The real estate industry is also heavily influenced by the pandemic; Investors are increasingly asking themselves whether it currently makes sense to invest in real estate. The currently prevailing, record-breaking low building interest rates could be an argument for this.
Important questions when making an investment decision
If you want to buy real estate these days, you should first ask yourself a few important questions. Because especially in times of the Corona crisis, it is important to be able to absorb any uncertainties with well-considered financing. How likely is it that I will lose my job in the future? Which form of financing is suitable? Are the steadily rising real estate prices in cities even justified? Only when all these questions have been adequately clarified should you decide to buy a property and a financing alternative.
Construction rates near all-time low
Even if the Corona crisis has largely negative effects on the real estate market, it currently has at least one positive side aspect for investors: As Interhyp, the largest broker of private construction financing in Germany, reports, building interest rates were only slightly above at the beginning of October the all-time low of March 2020. Mirjam Mohr, Head of Interhyp’s Private Customers Division, explains the reasons for this low: “Over the summer, interest rates fell slightly as a result of the economic uncertainties of the Corona crisis and the central banks’ low interest rate policy,” reports the expert. With a good credit rating of the investor and attractive financing conditions, according to Interhyp, building interest rates of less than 0.5 percent can currently be achieved in the best case. On average, building interest rates for ten-year mortgage loans at the beginning of October are well below one percentage point.
Current market conditions
The current development of the economy came as a surprise to some financial experts. Many economists in Germany had anticipated falling overall economic demand in the market due to uncertainties among the population. The decline in the second quarter and the recovery are currently more favorable than we had expected, ”says Timo Wollmershäuser, economic director at the Institute for Economic Research (ifo). The ifo Institute has therefore revised its forecasts significantly upwards. In contrast to the forecast in summer 2020, the economy will not shrink by 6.7 percent this year, but only by around 5.2 percent. The US labor market and industrial production in China also recovered significantly in September, according to Interhyp.
“It seems as if the billion dollar aid programs of the governments could prevent an even worse recession,” suspects Mirjam Mohr in view of the current situation. The effects of the pandemic are unpredictable; Nevertheless, the ECB is still sticking to its expansionary monetary policy. According to Interhyp, there is currently speculation about an increase in the bond purchase program at the end of the year. According to the Ifo, the high demand for ten-year government bonds with current yields of minus 0.5 percent also has a major impact on interest rates on real estate loans.
How will real estate rates develop?
Many market researchers are impressed by the relatively stable development of the economy despite the current situation and adjust their expectations about changes in interest rates accordingly. In order to be able to better assess the development of mortgage interest rates in the future, Interhyp provides a forecast of the future development of building interest rates in its monthly Interhyp interest rate report. For this purpose, the broker for private financing asks experts from ten well-known credit institutions in Germany for their assessment. The main question is: “How will ten-year mortgage lending rates develop in the short, medium and long term?”
In the October report, most credit institutions are quite confident. In the short term, nine out of ten credit institutions are forecasting constant interest rates due to the prevailing uncertainty and the uncertain outcome of the US presidential election, and thus relatively cheap real estate financing options. One of the institutes even expects the interest rate level to fall. However, if you look at a period of 6 to 12 months, only 70 percent of the experts assume that interest rates will remain the same, while 30 percent predict an increase in mortgage interest rates if the economy begins to recover, for example with the introduction of a vaccine.
Extension of the child benefit scheme favors property purchases
Another measure that currently speaks in favor of investing in real estate is the federal government’s recent extension of the child benefit until March 2021. These are state grants intended to support families with children in building or buying their own home. Single parents or families who have at least one child under the age of 18 and an annual gross household income of EUR 75,000 (per child again + EUR 15,000) are eligible. According to Mohr, this measure is already well received by many families: “Especially for families with several children, the child benefit can noticeably facilitate the purchase or construction of their own home. During the consultation, we notice that many families specifically ask for funding such as building child benefit. “
Image sources: Andrii Yalanskyi / Shutterstock.com