The real estate market is under pressure: costs have risen, some projects have been paused and the number of new construction projects is falling significantly compared to previous years. The era of low interest rates is also over for real estate financing – and this is an issue in many places. The question also arose when German Finance Minister Christian Lindner (FDP) invited several people to Berlin a few days ago who deal with financial issues with short videos on the Internet and are called finfluencers. Families could hardly afford a home of their own, it was said. So what can we expect for the future development of the real estate market?
Jan Hauser
Editor in business.
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In 2020 and 2021, the construction interest rate was still around 1 percent or below. But in the past year, the interest rate has risen to almost 4 percent. Several industry insiders do not see this trend reversing in the short term. On the contrary, some even expect slightly higher interest rates in the near future, but also some fluctuations. According to estimates, interest rates between 3.5 and 4.5 percent are conceivable. In a sentiment barometer by real estate service provider Alasco, 211 out of 267 industry representatives said in March that inflation and rising interest rates are the biggest challenge.
Interest payments four times higher
Loan financing for the purchase of real estate has already become significantly more expensive: Compared to previous years, some buyers now have to make interest payments almost four times as high. Some then lower the repayment rate, but this means that they have to pay longer. What happens next with construction interest rates depends in part on how the European Central Bank (ECB) raises the key interest rate in order to reduce the high inflation rates in Europe. Since July last year, the ECB has raised interest rates in the euro area six times in a row – by 0.5 percentage points to 3.5 percent in March. At its next meeting next Thursday, the central bank could raise the key interest rate again. According to statements by ECB representatives, this is to be expected.
For Mirjam Mohr, Member of the Board of Management of the mortgage broker Interhyp, the ECB continues to move in the area of tension of having to decisively fight stubborn inflation without strangling the economy at the same time. The issue of financial stability has been increasingly added. "That's why we expect interest rates to continue to fluctuate sharply in the course of this year, with short-term swings above the 4 percent mark possible," she told the F.A.Z.
At the moment, interest rates are rising again and are currently at 3.82 percent for ten-year interest rate security. "However, we do not see any major increases to 5 percent or beyond in the foreseeable future." However, the turbulence on the financial market makes it even more difficult to predict how interest rates will develop in the long term than in the past.
Ingo Foitzik, Managing Director of Mortgage Lending at the Internet comparison portal Check24, also expects slightly higher interest rates. "In recent weeks, many banks have lowered their mortgage lending rates," he said when asked. He points out that the ten-year German government bond has risen again to 2.49 percent as the banking market has calmed down. As a result, interest rates on mortgage lending also rose slightly by 10 to 20 basis points last week. "In the short term, interest rates are likely to remain at current levels for the time being," Foitzik said. "In the coming months, the interest rate will go back towards 4 percent or even above due to further interest rate hikes by the ECB."