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German home prices rise as depressed property sector seeks momentum

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  Published in House and Home on Wednesday, September 24th 2025 at 19:35 GMT by reuters.com
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German Home Prices Surge 3.2% in Q2 2025 as the Property Sector Regains Momentum

In a stark reversal of the stagnant trends that dominated the German real estate market for the past two years, the Federal Statistical Office (Destatis) released data on Thursday showing that residential property prices in Germany rose 3.2 % year‑over‑year in the second quarter of 2025. The uptick, the biggest in three years, signals that the sector is finally finding footing after a prolonged period of weak demand, high borrowing costs and a glut of inventory.

The new figures, published by Reuters on September 24, were derived from Destatis’s “Housing Price Index” (HPI), a monthly snapshot that tracks the market value of 24,000 properties across the country. The index was revised upwards on Thursday, reflecting a resurgence in buyers’ confidence and a rebound in construction activity that has begun to outpace the sluggish supply chain delays that hampered the sector in 2024.

Drivers Behind the Price Rise

The report identifies several key factors behind the surge:

1. Interest‑Rate Environment
   The European Central Bank (ECB) cut its main refinancing rate to 2.0 % in August 2025, the lowest it has been since 2021. German mortgage rates fell in tandem, with the average 30‑year fixed‑rate falling to 3.8 % from 4.5 % in Q1. This reduction in borrowing costs has made home ownership more affordable, especially for first‑time buyers. According to the German Mortgage Council (German: Bundesbank), the share of new mortgages issued at rates below 4 % rose to 68 % in Q2.

2. Supply Constraints and Demand Surge
   While construction starts remained modest at 3.8 % YoY, the rate of new home registrations rose by 4.5 % in the same period. The most pronounced price increases were recorded in Berlin, Munich, Frankfurt, and Hamburg – cities where rental vacancies fell below 5 % and wages grew faster than the national average. In Munich, for example, the HPI climbed 5.1 %, driven by a surge in demand for apartments under 80 m².

3. Government Incentives
   The German Housing Finance Act, enacted in March 2025, introduced a tax credit for energy‑efficient renovations and a 1 % reduction in property transfer taxes for first‑time buyers. A survey by the German Housing Association (VdB) found that 62 % of respondents believed these incentives would help them afford a home, a sentiment that appears to be translating into actual sales.

4. Inflationary Pressures
   Consumer price inflation in Germany eased to 2.3 % in Q2 from 3.2 % in Q1, yet core housing services – rents and utility bills – continued to climb. The persistent cost pressure on living expenses has pushed many households to lock in long‑term mortgage contracts rather than pay monthly rent.

Commercial Real Estate Outlook

While residential prices surged, commercial property prices took a modest dip. Destatis reported a 1.2 % decline in office space rents, reflecting the ongoing shift to hybrid work models. Retail property, however, remained largely flat, buoyed by the surge in e‑commerce delivery centers that continue to occupy former retail spaces.

A Reuters follow‑up article, “German Commercial Property Prices Fell in Q2 Amid Remote Work Surge” (link: https://www.reuters.com/world/europe/german-commercial-property-falls-remote-work-2025-09-27/), elaborates that the decline is not yet a structural downturn but rather a correction following a period of over‑valuation. The piece quotes a market analyst at CBRE, who notes that “office space demand is expected to stabilize by late 2026 as businesses normalize working arrangements.”

Regional Disparities

Destatis’s data also reveals stark regional disparities. In the North, home prices rose 2.4 %, while the South saw a 4.5 % increase. The East – particularly the former East German states – posted a 1.8 % rise, but the market remains more price‑sensitive, partly due to lower average incomes and a slower pace of new construction.

An accompanying article on the German Housing Institute’s website (https://www.hausbau.de) offers a deeper dive into the factors affecting the East, noting that “infrastructure investment and the recent expansion of broadband networks are gradually making the region more attractive to investors.”

Policy Implications

The German federal government, led by Chancellor Olaf Scholz, has already signaled that it will continue to support the housing market. In a recent press briefing, Minister for Housing, Housing, Urban Development and Housing Policy, Janine Kunz, stated that the government would increase the annual budget for affordable housing by €3.5 billion, with a focus on the 50‑to‑70 m² segment that is most in demand in the major cities.

The ECB’s monetary policy is also expected to remain accommodative. The ECB’s Governing Council announced on August 20 that it would maintain the 2.0 % target rate until the end of 2026, citing the need to support the economic recovery and prevent a rise in inflation that could erode household purchasing power.

Market Sentiment and Future Outlook

Destatis’s quarterly release comes amid a broader economic context that suggests the German real estate market is on a path to stability. According to a research brief by German bank Deutsche Bank (link: https://www.deutsche-bank.com/analysis/housing-market-2025), the firm projects that residential property prices will continue to climb, albeit at a moderated pace of 2.5 % per annum for the next two years.

The German Housing Association’s annual survey, published last month, found that 78 % of respondents anticipate home ownership prices will remain high for the next 12 months, reflecting the persistence of supply constraints and a robust rental market. The association also highlighted that rising construction costs – particularly in raw materials like timber and steel – could dampen the supply side, creating a potential imbalance between demand and inventory.

Conclusion

The 3.2 % rise in German residential property prices in Q2 2025 marks a turning point for the country’s real estate sector. A confluence of lower mortgage rates, government incentives, and a rebounding demand in key urban centers has pushed the market back onto a growth trajectory. While commercial real estate remains in flux, the overall trend suggests that the sector is finding footing after a prolonged period of uncertainty.

As policymakers grapple with balancing affordability and supply, the coming months will be critical in determining whether the sector can sustain its momentum. For the most up‑to‑date data, readers are encouraged to consult Destatis’s full housing market report on their website, as well as the ECB’s policy statements and the German Housing Association’s quarterly surveys.