Monthly report of the Deutsche Bundesbank – Residential real estate defies the crisis

Residential real estate is defying the corona crisis and is still very popular. The Deutsche Bundesbank also sees no reason to issue a negative forecast for future price developments. At least as long as the German economy does not go into a downturn.

Residential real estate immune to the corona crisis

Real estate is considered a stable investment and the corona crisis has so far not affected the residential real estate market. In line with these consistently positive developments, the Deutsche Bundesbank sees no signs of a crash on the German real estate market, as can be seen in the Bundesbank’s October monthly report, which is available to Reuters.

Accordingly, a sharp drop in prices cannot be forecast for the time being, as long as the economy does not have to suffer any further significant setbacks, the report says. The real estate market for residential properties was largely unscathed during the pandemic.

One argument for the positive outlook is the economically sound price development, which does not show any characteristics characteristic of economic bubbles, such as speculation and overvaluation. According to the Bundesbank, there has so far been “little evidence” of this.

Price development depends on the economy

However, investors should not be completely unconcerned about the current situation, as the most recent economically relevant events have further weakened the economy. Accordingly, the hype on the residential property market could subside in the coming months. “Particularly in view of the combination of an initially unabated expansion of the housing supply and weaker demand, the price dynamics could slow down faster and more strongly than previously applied in the event of additional turbulence,” says the report.

Nonetheless, investors should not expect bargains, because price developments in recent years in particular have resulted in a very high price level. “In urban regions in particular, considerable overvaluations have built up,” according to the Bundesbank.

Because residential property prices are currently marching briskly upwards. In addition, even if the purchasing power of the German population declines as in the previous quarter, this should not affect future property prices – as long as this does not result in a sustained trend.

Opinion poll gives a similar result

According to a study carried out on behalf of Homeday by the opinion research institute Yougov, these assessments by the Bundesbank are rated similarly by the majority of investors. As part of the survey, 3,260 people were asked about property price developments during the pandemic.

According to this, 27 percent of the participants do not see any cuts in property prices that would be caused by the Corona crisis. This shows that the demand in the residential sector remained constant in October compared to May. The majority also consider corona-related complications that would affect the purchase process to be unlikely.

34 percent of the survey participants predict that property prices will continue to rise. Accordingly, the forecasts of the Deutsche Bundesbank coincide with the estimates of the population, so that both sides consider a collapse in the residential property market to be relatively unlikely.

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