The recent past represented a trend reversal in the real estate market. After many years in which prices for residential property rose continuously, purchase prices for apartments and houses fell in 2023. But what trends do current and future property owners expect in 2024? We take a look ahead and summarize all the important price trends in the real estate market for you in this text – from rents and interest rates to construction prices and property prices.
The state of the real estate market at the end of 2023
When it comes to investing in real estate, rents, interest on loans, construction prices and real estate prices are the crucial calculation variables. Because they essentially determine the return that a property achieves. In order to evaluate the four important factors for 2024 in the real estate market, let's first take a look back. Therefore, in this section we summarize how the four sizes have developed in 2023.
Rents: increases without end
In short: rents are rising and rising! The trend of the past decades in the real estate market will continue in 2023. The Federal Statistical Office calculated an increase in rents of 5.5 percent for the whole of Germany by August 2023 compared to the base year 2020. In some large cities, rents for new buildings are already around 20 euros per square meter. Munich is the frontrunner here with an average of 21.01 euros. These are good prospects for investing in real estate as an investment. This means that as a landlord you will achieve higher rents and therefore higher returns.
Interest rates: Unimagined flights of fancy
The development of loan interest rates in 2023 was less encouraging for the real estate market. From the beginning of 2022, interest rates on real estate loans rose sharply. After a long phase of extremely low interest rates, sometimes below one percent, interest rates reached their peak at 4.23 percent in October 2023. Since then, however, they have fallen back to moderate levels of 3.5 percent. Although the increase was significant, interest rates in the real estate market are still at a very low level from a historical perspective.
Construction prices: normality is returning
The excessive increase in prices for the construction of new properties has weakened significantly in 2023. While prices jumped by up to 20 percent in 2021 and 2022, the values for 2023 are only 6.4 percent price increase compared to the previous year. These figures were determined by the Federal Statistical Office. This was a good sign for investing in property as an investment. Interrupted supply chains due to the corona pandemic had previously caused the sharp increases. Despite the now opposite trend, the increases in previous years led to new construction of residential properties almost coming to a standstill in 2023.
Real estate prices: After a long time, things went down again
Due to high interest rates, demand for real estate fell significantly in 2023. This led to real estate prices falling for the first time since 2008. After an absolute peak in 2022, in which real estate prices for residential buildings almost doubled compared to the base year 2003 (Association of German Pfandbrief Banks), the values fell significantly in some cases. Purchase prices fell by up to ten percent in 2023. However, experts such as Valeri Spady, real estate entrepreneur and CEO of the DFK Group, see this as merely a healthy consolidation of the previously completely overheated market. You can find a detailed interview with Valeri Spady on the development of real estate prices including an outlook on the expected trends here.
Forecast 2024 – the trends for a successful investment in real estate
After a brief overview of the current state of affairs in real estate, the forecasts for the trends of 2024 in the real estate market now follow. Overall, one thing can be said: the turbulent years with the corona pandemic, the war in Ukraine, interrupted supply chains and skyrocketing construction prices and interest rates are over. Overall, the real estate market and real estate prices are heading towards quieter times again. Good news for investing in property.
Rents continue to rise
The most encouraging news for investors in the real estate market is that rents will continue to rise in 2024. The trends show this clearly. Especially in large cities and regions around large metropolises, huge demand and a tight supply lead to higher rents. This situation is exacerbated by two factors: firstly, the continued influx of people into these popular regions and secondly, the sharp decline in new property construction. So while demand is increasing, supply on the real estate market remains at its previous level. The customers of the DFK Group benefit from this trend. The vast majority of DFK's properties are located in growth regions in and around large cities or metropolitan regions.
Interest rates are consolidating
When it comes to interest rates for loans to purchase real estate, experts expect that the current interest rate level will remain the same for the time being. A stabilization at around 3.5 percent is mentioned as the most likely scenario. The trend is moving back towards more security when financing real estate. In the long term, interest rates are expected to continue to fall.
This is due to the falling inflation rate. Inflation in December 2023 was only 3.7 percent, well below the values at the beginning of the year, when there was an inflation rate of almost nine percent. Optimistic forecasts assume that interest rates on real estate loans will continue to decline as early as 2024. This would make financing an investment in real estate as a capital investment much easier.
Construction prices on the decline
There is also good news for investing in real estate when it comes to construction prices. Because the strong price increases have weakened significantly in 2023. If this development continues, experts, such as those from the Federal Institute for Building, Urban and Spatial Research, expect prices to fall by around two percent as early as 2024. The positive prognosis results from two factors. On the one hand, the supply chains for building materials are now stable again after the extreme difficulties during the corona pandemic. On the other hand, energy prices have fallen again. Together with the falling demand in the construction sector due to the slump in new construction, the trend towards a decline in construction prices is very likely.
Real estate prices continue to fall, but moderately
The forecasts for the development of real estate prices assume that they will continue to decline on the real estate market in 2024. However, the trend is that the declines are no longer as severe as in the previous year. Price reductions in the low single-digit percentage range are expected. Initial voices assume that the price reductions in the real estate market will have bottomed out by the end of 2024 and that real estate prices will then rise again. This is closely related to the development of interest rates. If interest rates fall significantly, this could even trigger a new boom in the real estate market, with demand for real estate and thus also their prices increasing suddenly.
Conclusion: Conditions for investing in the real estate market in 2024 are better than they have been for a long time
The chances of making a high-yield investment in the real estate market in 2024 are better than they have been for a long time. Investing in a rented property is still worthwhile anyway. Further falling real estate prices, the decline in construction prices and, in some cases, sharply rising rents are ideal trends for entering the real estate market or expanding your own real estate portfolio. In addition, interest rates have consolidated. This ensures security and predictable financing expenses.
Under no circumstances should you wait for lower interest rates
Experts do not recommend waiting to invest in a property because interest rates continue to fall. Because as soon as this happens, real estate prices will skyrocket. This is because many people simply put their investment in a property on hold during the high interest rate phase. So the demand is there unbroken. So as soon as interest rates continue to fall, this pent-up demand will most likely immediately trigger a new boom. In addition, the path to lower interest rates may take a long time to come due to the long delay in reactions from banks and central banks. The great lack of new buildings then does the rest.
DFK Group with a large selection of real estate as an investment
The DFK Group has taken precautions for the situation that is now arising. Contrary to the trend of postponing or completely abandoning construction projects, the DFK Group has continued to implement its plans for new buildings and the renovation of existing properties. This means that DFK Group customers have a wide selection of properties for investment in various attractive growth locations. Take advantage of this opportunity and get non-binding advice from our experts on investing in real estate at one of our locations in Germany. Whether on site or online – we are there for you and will accompany you on your way into the real estate market with a lot of experience and a high level of expertise.
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