
Buying real estate in the past vs. today: Was it really easier back then?
Whether financing a property used to be easier depends on several variables. On the one hand, this varies from region to region, and on the other hand, financing costs and wages play a role in addition to property sales prices.
The construction financier Dr. Klein has attempted to incorporate all these variables into a formula and calculated how many net monthly salaries buyers had to spend on an average-sized property (150 m²) in ten different metropolitan regions in 2017 compared to 2007.
It quickly becomes clear that if you look at the rise in property prices alone, buying a property has definitely become more difficult. While in 2007, the average price for 150 square meters was €270,000, by 2017 it had risen to €380,000. That is a price increase of around 40 percent.
This could only be attributed to general inflation if wages had risen similarly over the same period. However, this is not the case. Wages rose by only 19 percent in the old federal states and by 27 percent in the new ones.
However, the researchers have included a third variable: construction interest rates. These have fallen sharply since 2007 as a result of the European Central Bank's current low interest rate policy. While real estate buyers paid an average of 5.7 percent interest on a loan in 2007, this figure was only 2.3 percent in 2017. This development has a major impact on financing.
Overall, this means that buying real estate has become easier – at least in theory – in nine of the ten metropolitan regions surveyed. At the very least, buyers need to budget less net income for financing. In the Düsseldorf metropolitan region, for example, 142 net household incomes were still required in 2007 for a 20-year full repayment of the property. in 2017, this figure had fallen to just 128. Only in Munich do buyers have to save more in comparison. Here, 211 monthly salaries were required in 2007. In 2017, the figure was 237.
But does that mean that today's property buyers, unless they are looking in Munich, should simply not make such a fuss? It's not quite that simple, because even if you need to save less overall for financing, the barriers to entry have become higher. After all, it is common for 20 percent of the property price to be financed not only by a loan but also by equity. Instead of $54,000 in equity for the aforementioned 150-square-meter average property, buyers now need $78,000.
In addition, other ancillary purchase costs such as notary fees and land transfer tax increase proportionally to the purchase price. These costs are not taken into account in most financing arrangements and must therefore already be available at the time of purchase. Buyers today therefore need to have saved more money before they start looking for their dream property. The entire process of buying your own home has not become more difficult—it's just that the first step is harder these days.
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Photo: Saintantonio21 / Depositphotos.com