The German house market is teetering on the brink as homeowners and investors expect rising house prices to slow for the first time this year.
House price index Europace is ready to release official figures for the third quarter within a few days.
The outlook is gloomy as prices will need to have increased by at least 1.8% in September to keep pace with rises earlier in the year – but this is against the backdrop of continuing squabbles over the Eurozone debt crisis and a falling GDP.
Industry insiders are forecasting the housing market to slow – certainly from the start of 2013, if not earlier.
Besides external economic issues, Germany is also seeing rising unemployment, which fuels concerns for households about buying a home.
In other European countries, including Britain, buyers have stepped back from buying as they do not want to over commit their budgets if they are uncertain about work.
Modest increase
The prediction is a modest 0.3% increase for the third quarter, slipping to 0.2% for the next three months – this compares with an average 0.3% monthly increase this year.
The expected figures could be the final curtain call on Germany’s minor property boom, which has seen prices rise while all the nations around have slumped.
Second quarter figures from Europace showed a 5.7% increase – so even a drop in prices now means an average increase of 5% across the year, and that’s a 10% increase on 2011.
Despite the price correction in the market, most observers do not see German property prices as an inflationary bubble about to burst.
Mortgage lending is more stable than elsewhere in Europe, and is grounded in a high deposit sensible loan-to-value and property price environment.
Momentum dampened
Mortgage rates are not subsidised to make them more affordable and the nation has more of a rental culture than the UK.
The Bundesbank makes a point of monitoring house prices “very closely.”
“Our central case for 2012 is that prices on the Europace index increase at a 0.3% average monthly pace till year end, resulting in annual growth of around 3% by Q4 and 5% for the year as a whole,” said Josh Miller, of the Royal Institution of Chartered Surveyors (RICS).
“Our 0.3% assumed sequential rate is the monthly average recorded since January and reflects our belief the labour market will remain supported in the near term.
“Next year is a different story; key survey measures point to a broad based deterioration in activity and confidence, with a notable rise in unemployment expectations. Without a quick reversal in these indicators labour market conditions are likely to deteriorate as we enter 2013, which at the very least, will dampen house price momentum thereafter.”
