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German house price rally to slow but cheap money to keep it running -Breaking

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© Reuters. FILE PHOTO – The Frankfurt skyline, including its offices buildings, and the bank district, are captured at sunset. This is as the spreading of coronavirus (COVID-19), continues. Germany’s government has plans for new pandemic controls in Frankfurt.

Jonathan Cable and Zuzanna Stzymanska

BERLIN/LONDON – Home prices in Germany’s booming property markets are expected to continue rising sharply through 2022. A Reuters poll revealed that although the pace of inflation will decrease in the future, they will continue to outpace general inflation.

Much like the rest of the world in the Coronavirus Pandemic, Germans spent the majority of their time working at home. People who had the means to relocate sought larger properties which drove up home prices.

It has been cheaper than ever to move up or to purchase a property. This is due to the low interest rates.

Although the German market for housing was historically dominated by renters, recent years have seen a rise in demand for safe-haven investments, as well as speculators. This has led to a boom in German real estate.

Isabel Schnabel, a member of the European Central Bank Board, stated in February that when measuring inflation, the bank should take into account surging home prices.

The majority of polling was done before Russia invaded Ukraine. This could limit or delay any ECB plans to tighten monetary policy. In turn, this may help the housing market temporarily.

The February 10th-March 2 Reuters poll, which included 16 market analysts and property experts, showed that home prices rose by 10% in 2017. They were expected to climb 6.3% this fiscal year. The pace of this increase was predicted to be 4.5% next year, and then 2.8% in 2024.

INFLATION

However, the January Reuters poll found that consumer price inflation stood at 3.0%. 1.8% and 1.9% in the respective categories. Additionally, the most recent house price forecasts showed a significant improvement over the previous November projections of 6.0% to 4.0%. [ECILT/EU]

Carsten Brzeski from ING’s global macro head, said that house prices would continue to increase, though at a slightly slower rate than previous years.

In the future, house prices will rise due to the “mismatch between supply, demand” (currently fuelled in part by low supply) and high construction and material costs.

According to the European Union’s Financial Stability Watchdog, Germany must curb house price boom by limiting mortgage interest rates and forcing banks into capital building.

Marco Wagner (DE: Senior economist at Commerzbank) stated that the ratio between income and house price has increased since the boom housing in the ’90s. This is especially true for large cities.

Analysts rated the German housing market 8. It was close to the original estimate. This median is also one of highest medians compared to other Reuters polls about major housing markets.

Answers to an additional question indicated that the ECB would need to raise its refinancing rates to 1.50% in order to slow down activity. It sits currently at zero. Only 13 economists in a separate Reuters survey on ECB policy envisioned it increasing this year.

Pekka, the economist at the German Economic Institute for Housing Policy and Property Economics, stated that “to significantly slow down activity, it is necessary to increase interest rates to a sharp extent.”

(For more stories about the Reuters quarterly housing market polls, click here:

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