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Sharp Increase in German Real Estate Prices Nationwide But Still No Speculative Bubble

Press Release of November 19, 2014

Speculative house price increases potentially mean major real and financial risks and have increasingly been the subject of current public debate in Germany. Recent events in countries such as the US or Spain have demonstrated the negative impact that the bursting of speculative price bubbles can have on national economies. However, the signs of speculative property price bubbles are difficult to detect at national level because the aggregate data conceal opposing developments on regional real estate markets. The present DIW study analyzes a dataset comprising housing rent and price time series in 127 German cities compiled by the independent consulting company bulwiengesa AG. These data allow a detailed analysis of property prices by region and consequently make it possible to identify speculative price increases at an early stage. Explosive growth in prices has been observed in many German cities, which could be an indication of a property price bubble. However, in the majority of cases, the price increases were triggered by rises in residential rents and therefore, for the most part, are not a result of speculative influences. On the whole, also compared to other developed economies, the real estate market in Germany is structurally sound. For example, the share of housing loans with a long-term interest rate fixation tends to be very large and there are no unusual developments in lending practices. Consequently, political intervention is unnecessary at this stage, although a close eye should be kept on regional developments.