- Prediction: The housing crisis concludes, yet interest rates exhibit minimal decline
Mortgage rate decreases aren't expected to be substantial as per Commerzbank. Despite the European Central Bank potentially lowering interest rates by 1% by summer's end, as suggested in recent analysis, this decrease would be less than what's currently anticipated in the financial market. This would limit the potential drop in ten-year mortgage rates. "These rates are likely to hover around 3.5% in the coming months and even increase slightly in the latter half of 2025," the bank stated.
In a nutshell, Commerzbank predicts a resurgence in house prices in the near future. "This is typical with escalating prices and incomes," they added. However, the projected price increase for the upcoming year is anticipated to be modest - despite the housing shortage. A new housing market boom akin to the one prior to the interest rate shift isn't forecasted. "For that to occur, mortgage rates would need to drastically decrease, which we don't foresee happening in the upcoming years."
Indications of the conclusion of the price adjustment are on the rise
Soaring interest rates and construction costs thrust the German real estate market into a predicament. Many individuals can no longer afford homeownership. As per the Kiel Institute for the World Economy (IfW), last year witnessed the steepest decline in property prices in about 60 years.
However, several indicators signify that the predicament is coming to an end. Commerzbank cites increasing demand for mortgage loans, an uptick in transaction numbers, and a slight rise in the prices of existing properties - following a drop of more than 12% since the spring of 2022. This suggests that the adjustment is concluding sooner than expected according to Commerzbank. Real estate is still estimated to be "overvalued by around 5-10%," experts assert.
Despite the ongoing challenges in the German real estate market, the crisis seems to be easing. The predictions of Commerzbank indicate that the housing market adjustment might conclude sooner than anticipated, primarily due to the increased demand for mortgage loans and rising property prices. However, the house price increase for the upcoming year is expected to be modest, and a new housing market boom like before the interest rate shift isn't forecasted, as substantial mortgage rate decreases are not expected.
