German Residential Property Prices Fall For 6th Quarter

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House prices in Germany declined for a sixth consecutive quarter in the first three months of the year, extending the severe slump from last year that was triggered by high interest rates and rising cost.

The residential property price index fell 5.7 percent year-on-year in the first quarter, following a revised 7.2 percent decline in the previous three months, the statistical office Destatis said Friday.

House prices plunged 10.2 percent in the third quarter of 2023, which was the worst fall in the current cycle.

Residential property prices decreased 1.1 percent sequentially in the first quarter.

In the full year 2023, German house prices decreased 8.4 percent, which was the sharpest year-on-year decline since the beginning of the time series in 2000 and the first decline since 2007.

Earlier this month, the European Central Bank cut interest rates for the first time in five years as policymakers were convinced that inflation is finally returning to the 2 percent target. Economists expect the bank to lower rates once again for the rest of the year.

ING economist Carsten Brzeski said the financing conditions remain restrictive despite the ECB rate cut and this will continue to damp housing demand, thus making a strong rebound of the market unlikely.

"The tense situation in the construction sector and the lack of new housing supply should exert upward pressure on prices while also weighing on volumes," Brzeski said.

"Although demand will continue to recover in the months ahead, a swift return to levels seen prior to the ECB's interest rate hike cycle is unlikely. It will be a gradual recovery."

ING expects German house price growth of about 1 percent this year.

A recent survey by the ifo Institute showed that German builders remained pessimistic regarding their business situation in May but were hopeful of better future as they think the worst of the economic downturn is behind them.

Many companies are trying to counteract the order shortage by cutting prices, the ifo said.

The ifo Institute raised the German economic growth forecast for this year to 0.4 percent from 0.2 percent, on Thursday. The think tank retained its prediction for next year at 1.5 percent.

"The German economy is slowly working its way out of the crisis," ifo said.

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