For some time now there has been chatter of a housing bubble in Germany, as home prices increased at levels not seen since the 1970s.
Home prices increased 9,5 % year-over-year in the first quarter, after climbing 5,4% in 2011. But Societe Generale's Klaus Baader cites 4 key reasons that talk of a German housing bubble is premature:
- German real estate prices were declining at a time when "real estate assets were booming in much of the world." From 1995 - 2009 home prices in real terms fell 23%. Just as real estate prices are declining in the rest of the world according to the OECD, Germany is seeing the fastest rate of home price appreciation in the 22 countries included in the OECD's home price data base.
- Homes in Germany are cheap and house price-to-income ratio has for the most part been on a continuous downward trend since 1980. "In fact, compared to 1981, the ratio has declined by just shy of 50%. In contrast, in the euro area as a whole (including Germany), the ratio increased by some 38% between 1986 and 2010.
- The ratio of home prices to rents peaked in 1981 and it is more expensive to rent a home than to buy one.
- What's more, debt servicing costs have declined dramatically and making housing more affordable.
Source: http://www.businessinsider.com/there-is-no-housing-bubble-in-germany-2012-7