Prices for condominiums in Germany increased by 0.3 percent in the third quarter compared to the same period of the previous year, according to a study by the German Economic Institute (IW) in Cologne. Single-family and two-family houses became 0.4 percent more expensive. Purchase prices have moved largely sideways since 2023 and stand roughly ten percent lower than the peak recorded in 2022.
At the start of the year, the dynamics of advertised rents and purchase prices appeared to be converging at an annual growth rate of three to four percent. However, researchers now expect that purchase prices are more likely to stagnate or decline, while advertised rents increase more sharply. This shift is driven by recent interest rate developments that dampen demand for purchase properties, shifting potential buyers into the rental market.
Due to higher financing costs, demand for purchase properties is dropping, keeping prices mostly stagnant according to study authors Pekka Sagner and Michael Voigtländer. Since the beginning of 2026, yields on ten-year Pfandbrief bonds have increased by nearly 0.7 percentage points, while short-term maturities rose by more than 1.0 percentage points. Rising inflation expectations and growing doubts about the sustainability of public debt, particularly in the United States and France, are cited as decisive factors. Mortgage rates for ten-year loans currently stand at approximately 4.4 percent, according to the intermediary Interhyp.
In new construction, completions are expected to fall further due to lower demand combined with rising construction costs driven by high energy inputs. Interest rates and building costs are thus climbing simultaneously, aggravating the residential construction crisis. For a loan of 300,000 euros and a two percent repayment rate, households would have had to pay around 1,450 euros monthly at the start of the year, compared to roughly 1,600 euros now, representing an increase of more than ten percent.
Price developments vary significantly across regions. In the seven largest cities, condominium purchase prices fell by 0.8 percent, whereas they rose by 1.2 percent in other major cities and surrounding areas. Essen recorded the strongest increase at 3.5 percent, followed by Dortmund at 2.0 percent and Hamburg at 1.8 percent. Conversely, declines were registered in Stuttgart at 3.9 percent, Berlin at 2.0 percent, Cologne at 1.3 percent, Leipzig at 1.0 percent, and Munich at 0.7 percent.
Meanwhile, rental prices are increasing at a faster pace, with nationwide rents rising by 4.5 percent in the third quarter year-on-year. Hamburg registered the strongest rental increase at 6.8 percent, followed by Cologne at 5.3 percent and Essen at 4.9 percent. Since 2022, rents have risen the most in Berlin at 29.5 percent and the least in Stuttgart at 16.7 percent. High interest rates are steering solvent households into the rental market, and the IW anticipates no near-term relief as rising construction costs weigh on new supply and push rents higher.
Given the increasingly difficult conditions on the housing market, the IW considers state countermeasures important. Such measures do not necessarily require extensive financial commitments from the government. The institute points to Italy as an example where guarantees or sureties serve as strong instruments to facilitate household access to homeownership. Guarantees for project developers could also help stimulate new construction with minimal financial deployment.
