Could Germany’s Rising Home Costs Signal A Bubble About To Burst?

By Stephen Fuchs on Email @StephenWFuchs

Euro Monopoly Homes

Deutsche Welle (DW) recently decided to look into the rising costs of owning a home and renting an apartment in Germany and posed the question of whether or not it was a signal of an impending crisis like that seen in the U.S., Spain and Ireland.

The report is based on a recent study conducted by the German Central Bank that warns of this recent peak in housing costs.  In seven of Germany’s largest cities, real estate prices have surged “as much as 20 percent above the national average.”  Such a large number like this has caused some to draw comparisons to the housing bubbles that burst in the previously mentioned nations, which ultimately led to an economic collapse.

On the surface it may appear that Germany is headed in a direction that will lead to an economic collapse, but there are some key differences between Germany’s housing market and that seen in the U.S., Spain and Ireland.  Michael Voigtländer of the Cologne Institute of Economic Research (IW) believes the cause for Germany’s rise in housing costs has less to do with risky loans and instead is based on supply and demand.

A rising number of Germans are choosing to live closer to major cities, including Munich, Cologne, Frankfurt and Hamburg, instead of the once popular rural areas.

“Peoples’ preferences have changed – and they are prepared to pay more for inner city locations,” Voigtlände said in an interview with DW.  “A factor driving that is the rising cost of mobility. People don’t want a second car and don’t want to commute as far.”

Other industry experts weighted in with their thoughts in the full DW piece, including statements made by Hermann-Josef Hansen, the director of the Economics and Growth Department of the German Central Bank.  We recommend checking out the full article, and have provided a link in the source section below.


Sources: DW
Photo: Images_of_Money [Flickr]

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Stephen Fuchs
Stephen founded German Pulse and LGBT Germany out of a passion to introduce Americans to a Germany that goes beyond beer and polka (although with enough beer he has been known to polka it up a bit). He's a coffee addict, lover of wine and good times, a hit in the kitchen and editor of TV commercials. You can follow him on Twitter (@StephenWFuchs) to find out a lot more.
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