Rising property costs hinder the ability of first-time buyers to enter the market
Upward Trend in Real Estate Prices Puzzles Potential Buyers
The current surge in housing and real estate prices is creating obstacles for some potential buyers, as per a survey conducted by mortgage broker Interhyp. In their latest annual survey, a mere 55% of respondents found residential real estate in their respective regions "easy" or "moderately" affordable, marking a four percentage point decline compared to last year. Yet, this figure still surpasses what was reported two years ago.
Sampled from around 1,000 interested online users who either actively sought real estate in the past two years, have been shopping around, or have recently purchased a property within the last five years, the results mirrored the chaotic state of the real estate market over the past few years. The steep increase in interest rates in 2022 and 2023 pushed numerous potential buyers out of the housing market. Back in 2022, only half of the respondents deemed residential real estate in their region as affordable. Saddled with unsold properties, sellers were forced to lower their prices substantially.
However, the gloomy days appear to be behind us, claims Interhyp, as residential real estate prices have risen by approximately five percent since January 2024. On the flip side, mortgage interest rates have taken a slight dip. "This surge in demand for real estate has pushed prices up," stated Jörg Utecht, Interhyp's CEO. In line with Utecht's remarks, 68% of survey participants agreed that real estate prices have increased in the last 12 months.
Despite the double-edged sword of soaring prices and easing interest rates, many potential homeowners still grapple with affordability issues. And it's not only their local markets skewing the numbers; data from the Federal Statistical Office (Destatis) reveals a year-on-year rise of 1.93% in the House Price Index for the fourth quarter of 2024—the first positive growth since the decline period. This broad trend signifies that the upward trajectory in real estate prices is affecting the nation as a whole. In short, the days of falling prices might be over, and preparing for increasing real estate prices is the new norm.
Economic and social policy discussions may now revolve around the impact of the rising real estate prices on potential homeowners, as the upward trend continues to affect the nation as a whole. This situation has resulted in a challenge for investors seeking profit in the housing-market, as the steep increase in real estate prices, along with slightly lower interest rates, cracks the affordability for many, despite a dip in mortgage rates.
