
Real estate purchases: conditions better than in the past
If you compare the current situation with the 1980s, you get a different picture. Data from the Organization for Economic Cooperation and Development (OECD) show that, from a long-term perspective, buying real estate is easier today than it was back then.
This is because the affordability index, which the OECD calculates on the basis of real estate prices and income, has fallen in recent years. Only the rise in interest rates is influencing the current market situation, which is why prices have fallen significantly in many regions.
Real estate prices then and now
At first glance, the situation appears different to the layperson. Real estate prices have risen by around 150 percent since 1980. However, when inflation is factored into the calculation, real real estate prices have risen by only 15.5 percent. At the same time, real incomes have risen by 41 percent. Wages therefore increased more than real estate prices. This improved affordability.
Loans then and now
The rapid rise in financing interest rates to around 4 percent meant that prices and financing options were no longer in sync. The purchase price level is adjusting more slowly than interest rates have risen.
"While the average monthly installment was still 1,166 euros before the interest rate hike, it was already 1,505 euros a year later," explains Jörg Utecht, CEO of the financing service provider Interhyp, to tagesschau.de.
According to Utecht, construction interest rates in the 1980s were 10 percent and higher for a ten-year fixed-rate mortgage. For a loan of $200,000, the monthly payment was $2,000. With a ten-year loan, that adds up to $172,000 in interest costs. Today, with an interest rate of 4 percent, the monthly payment would be $986 and the interest costs would amount to around $70,000.
Sought-after locations
Nevertheless, many people feel that buying real estate is more expensive today. According to Jochen Möbert, real estate expert at DB Research, this is because real estate prices in sought-after regions have risen sharply in recent years.
These are primarily metropolitan areas, where more people live today than in the 1980s. Due to limited supply and high demand, real estate here is less affordable, according to Möbert.
Property seekers are therefore much more reliant on the brokerage skills of real estate agents. It is worth making your financing limits transparent so that the agent can match the possibilities of interested parties with the ideas of sellers.
Greater hurdles today
The ancillary costs for the notary, land registry entry, and real estate transfer tax are higher today than they were in the 1980s. While the real estate transfer tax was 2 percent for everyone in 1983, it is now up to 6.5 percent, depending on the state. This means that more savings are needed to cover the 20 to 30 percent of the purchase price that must be paid in equity. Reiner Braun, CEO of empirica ag, emphasizes that many young families are no longer able to "keep up with the rapidly rising prices and real estate transfer taxes."
Changing lifestyles
Changing consumer behavior is also having a major impact, says Braun. "Families in the 1980s saved more than they do today, partly because they restricted themselves more." But fewer and fewer people want to do that. According to Interhyp's affordability study, 54 percent—8 percent more than in the previous year—say they do not want to compromise their quality of life for financing costs.
Would you like support in finding an affordable property and suitable financing? Contact us. We will be happy to advise you and refer you to an independent financial advisor.
Note
For reasons of better readability, the generic masculine form is used in this text. Female and other gender identities are expressly included insofar as this is necessary for the statement.
Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific case.
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