German housing market has been remarkably strong for decades, but it faces a serious downturn in prices over the next couple of years.
Mortgage rates have soared, with a 10-year fixed rate up from 1% to 3.9% since the start of the year.
Rental income is a priority for German investors, with approximately 5 million people in Germany receiving revenue from renting.
Frankfurt and Munich in the top four of its Global Real Estate Bubble Index for 2022, as locations with pronounced bubble characteristics.
UBS defines “bubble” qualities as a decoupling of housing prices from local incomes and rents and imbalances in the local economy, including excessive lending and construction activity.
In real terms a bubble burst would be more than 15% decrease in prices and that would be a very, very bad scenario, a very strong, high risk scenario that is not the base case at the moment.
The Bundesbank will continue to monitor the housing market closely because it is vulnerable.