Real estate prices are falling, as are building interest rates. At the same time, there are twice as many properties on the market as there were two years ago. This offers interested buyers a lot of room for negotiation.
Erwin Muhr follows the real estate market very closely. Because he has big plans: He wants to sell his semi-detached house in Munich-Milbertshofen – at a good price. And then he would like to build it himself, in Bodenmais in Lower Bavaria. Also at a good price.
But the potential buyers of his 122 square meter apartment are not following the 59-year-old's asking price. “Customers know what's going on in the market – that there aren't that many interested buyers,” says Muhr. “You can tell that they're trying to drive the price down.”
House prices are plummeting
Prices are currently falling on the real estate market everywhere in Germany: According to the Federal Statistical Office, they fell by 10.2 percent in the third quarter of 2023 alone compared to the same period last year. The decline is particularly large in the top 7 regions in Germany, which also includes Munich: prices there fell by 12.7 percent.
At the credit broker Interhyp, CEO Jörg Utecht sees this as an opportunity – for buyers. The supply of real estate has also become much larger. According to the Interhyp subsidiary ThinkImmo, a cross-platform real estate search engine, there are currently a good 400,000 properties in the portals in Germany – twice as many as in 2022.
Good Negotiating position
“Of course, this also leads to a certain negotiating position that buyers have and can use,” says Utecht. If you're thinking about buying, there's no reason to wait. “We recognize that a favorable window of opportunity has opened up in the real estate market in which one or two bargains can definitely be found. Interest rates have fallen and property prices have not yet risen again across the board.”
While the price for properties in the energy efficiency class A+ or A only fell by 1.15 percent, the price for all efficiency classes below that fell. The price for a class B property fell by almost seven percent, while for classes C or D it is already almost eleven percent, according to Interhyp. For classes G or H it is over 13 percent.
Falling interest rates
Erwin Muhr's house is in energy efficiency class A. Just two years ago, Muhr would probably have sold his house long ago. But now he has taken it off the market and wants to wait. He hopes that interest rates will continue to fall and that buyers will then come back into the market.
Because something could change here this year. Building interest rates have already fallen recently. For a construction loan with a ten-year term, for example, the average interest rate has fallen from 4.23 percent to currently 3.45 percent since the beginning of November 2023, according to real estate financier Interhyp – a decline of almost 0.8 percentage points.
A window of opportunity is currently opening up for the CEO of Interhyp. “We have interest rates well above four percent. This means that we can save significant amounts over the term of a loan, sometimes several tens of thousands of euros,” says Jörg Utecht.
Many credit brokers are already pricing in the expectation that interest rates will continue to fall. Timo Wollmershäuser predicts that the European Central Bank's key interest rate could soon fall again. He is head of economic forecasts at the Munich Ifo Institute: “The interest rate turnaround will come, I think the European Central Bank will decide on the first downward interest rate step during the course of the year – probably in early summer – which will further ease the burden on the financing side.” And that could then cause building interest rates to fall further.
Construction industry under pressure
That would be a relief for Erwin Muhr, also because he wants to build in Bodenmais himself. He has already purchased the property. Now he is hoping for good offers from local builders and tradesmen. The local mayor, Joli Haller, is optimistic. He is observing more competition in the construction industry again: “We are seeing more offers coming in again, some of which have competitive prices. If this becomes more established, building applicants can expect cheaper construction costs.”
According to the latest study by the ifo Institute, the mood in the construction industry is poor. The business climate has currently fallen to minus 56.8 points – the worst value since the survey began in 1991. It is a rapid decline. Because during the low interest rate policy, construction companies were more than fully utilized, and due to the construction boom they didn't know “how to process all the orders,” according to ifo researcher Wollmershäuser.
This has changed dramatically as a result of the interest rate turnaround. “We had a wave of cancellations that swept through the country. And the rising interest rates until last year made financing expensive construction projects even more expensive. That deterred many buyers.”
Erwin Muhr doesn't want to miss the right time, sell his house in Munich at a good price – and benefit from falling building interest rates. The municipality has given him three years until his property in Bodenmais is to be developed.