Household members' enthusiasm for residential settings
Seeing a decrease in mortgage rates once more, numerous individuals are contemplating their personal abodes. In July, individuals requested as many construction loans as they did over a two-year span.
German consumer demand for mortgage loans witnessed a significant surge in July, reaching levels not seen since 2022, as reported by Barkow Consulting, based on European Central Bank data. German banks issued 19.5 billion euros in new business, marking a 25% increase compared to the same month last year. In June, new business in construction financing had already seen a recovery, growing by 17% to 16.3 billion euros.
The revival in the construction financing market appears to be driven by rising rents and a recent drop in interest rates, notes Peter Barkow, managing director of Barkow Consulting. "The upturn is here." This year, the total value of new business has already surpassed that of the previous year by 18%, standing at 112 billion euros. Mortgage rates have been decreasing lately, with 10-year loan terms currently offering conditions below 3.5%, after peaking at 4.2% towards the end of 2023.
Resurgence in the real estate market
Private construction financing had been on a roll until spring 2022, hitting a monthly volume of over 32 billion euros at its peak. However, the upward trend was halted by a rapid increase in interest rates, making mortgage loans more expensive after years of low-interest rates. Additionally, soaring construction costs made many individuals abandon their plans to build or buy houses. Consequently, new business in construction financing dropped to 161 billion euros in 2023, representing a 37% decrease from 2022's figures, according to data from Barkow Consulting.
The German Pfandbrief Banks Association (VDP), which represents the leading real estate financiers in Germany, has also reported an increase in lending activity. The association recorded the highest level of new business with mortgage loans since the third quarter of 2022, driven by increased demand for house and apartment financing. This suggests that the real estate crisis may be ending, as recently stated by the VDP, which also reported a stabilization in real estate prices for the second quarter.
With the resurgence in the real estate market, many individuals are considering investments in real estate, particularly in the housing sector. Given the decrease in mortgage rates, the demand for real estate loans has significantly increased, benefiting both homebuyers and property developers.
