Abstract
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
V. Recent Housing Market Developments1
1. After several years of stagnation, German housing prices have been picking up, especially in large cities. They have increased by 18 percent in nominal terms since the trough of 2009:Q2 (Figure 1). Recent housing price inflation has been stronger in the largest cities, in particular Hamburg and Munich where the appreciation since early 2009 has been greater than 50 percent in the apartments segment. Simple valuation measures such as price-to-disposable-income-per-capita and price-to-rent ratios have remained almost flat, except in a few hot spots where an upward trend is evident (Steininger, 2014). Analysis by the Bundesbank suggests that housing prices in Germany as a whole are currently close to their fundamental value, but that apartment prices in large cities may be overvalued by about 25 percent (Bundesbank, 2014).
Germany: Recent Housing Market Developments
Citation: IMF Staff Country Reports 2014, 217; 10.5089/9781498328524.002.A005
Sources: Haver Analytics, and IMF staff calculations.2. However the growth of housing loans in the aggregate is barely positive in real terms and lending standards have remained unchanged. Recent Bundesbank lending surveys suggest that the demand for housing loans has been and is expected to remain relatively strong, but that credit standards have not been loosened. Loan-to-value and loan-to-cost ratios for loans to developers trended up only slightly over the past several quarters (FAP, 2014). Thus at the moment there is no hint of the onset of a spiral between increasing prices and deteriorating lending standards.
3. Several demand factors contribute to explain the housing market revival. First, recent developments represent a normalization of prices after the years of decline that followed the post-reunification boom twenty years ago. Second, the decline in the unemployment rate, higher medium-term growth expectations and lower mortgage rates have improved households’ solvency. Third, the combination of a very low interest environment, the overperformance of the German bonds and equities over the past several years relative to their EA peers, and a large degree of uncertainty in global capital markets may have triggered renewed interest for investing in the domestic housing market. Stronger immigration flows and foreign investors’ interest also help explain the shift in demand.
4. The heterogeneous price response across regions to the recent shift in demand likely reflects supply factors too. Residential construction indicators have rebounded only modestly in the past four to five years following a trough in late 2008-early 2009, suggesting that demand may have outstripped supply. In a broader European perspective, the volume of new construction in Germany still appears relatively modest. The strength of markets in the center of the largest cities, where supply restrictions are the tightest, also points to an important role of housing supply factors.
Selected European Countries: Finished Apartments in Newly Built Residential Buildings per 1,000 Inhabitants
(2013)
Citation: IMF Staff Country Reports 2014, 217; 10.5089/9781498328524.002.A005
Sources: Euroconstruct, Bulwiengesa5. Macroeconomic effects of housing price inflation are likely to remain limited. The rate of home ownership is only 46 percent and banks do not offer equity release products, limiting the scope of housing wealth effects. Furthermore the typical down-payment of 30 percent is conservative, which implies that prospective borrowers need to save more when housing price increase (see Table 1). In fact, a recent study finds a small negative effect of real house prices on consumption in Germany (Muellbauer, 2013). The main channel through which housing price shocks affect the German economy is therefore residential investment, which has been picking up, but only modestly.
Institutional Characteristics of Selected National Mortgage Systems
Institutional Characteristics of Selected National Mortgage Systems
| Country | Typical loan to value ratio | Interest rate adjustment /a) | Typical duration (years) | Equity release products |
|---|---|---|---|---|
| Austria | 60% | F(75%) V(25%) |
25 | Not used |
| Denmark | 80% | F(75%) M(10%) V(15%) |
30 | Used |
| France | 75% | F/M/Other(86%) V(14%) |
15 | Not used |
| Germany | 80% | Mainly F and M | 10-15 | Not used |
| Italy | 50% | F(28%) Rest mainly M |
15 | Not used |
| Japan | 70-80% | F(36%) M and V(64%) |
25 | Not used |
| Netherlands | 90% | F(74%) M(19%) V(7%) |
30 | Used |
| Sweden | 80% | F(38%) M(24%) V(38%) |
25 | Used |
| Switzerland | 66% | Mainly V | NA | Not used |
| United Kingdom | 80-90% | M(28%) V(72%) |
25 | Used |
| United States | 80% | F(85%) M(15%) |
30 | Used |
Institutional Characteristics of Selected National Mortgage Systems
| Country | Typical loan to value ratio | Interest rate adjustment /a) | Typical duration (years) | Equity release products |
|---|---|---|---|---|
| Austria | 60% | F(75%) V(25%) |
25 | Not used |
| Denmark | 80% | F(75%) M(10%) V(15%) |
30 | Used |
| France | 75% | F/M/Other(86%) V(14%) |
15 | Not used |
| Germany | 80% | Mainly F and M | 10-15 | Not used |
| Italy | 50% | F(28%) Rest mainly M |
15 | Not used |
| Japan | 70-80% | F(36%) M and V(64%) |
25 | Not used |
| Netherlands | 90% | F(74%) M(19%) V(7%) |
30 | Used |
| Sweden | 80% | F(38%) M(24%) V(38%) |
25 | Used |
| Switzerland | 66% | Mainly V | NA | Not used |
| United Kingdom | 80-90% | M(28%) V(72%) |
25 | Used |
| United States | 80% | F(85%) M(15%) |
30 | Used |
6. No policy action is contemplated at the moment. The Bundesbank is monitoring the situation on the German housing market very closely and is conducting surveys to obtain greater details on the financing of residential property while cautioning banks to stick to conservative lending standards. As discussed in the next chapter, the only macroprudential tool targeting the housing sector currently available is sectoral risk-weights. Complementary tools working through the demand side of the mortgage market such as loan-to-value and debt-service-to-income ceilings are currently not in the toolkit.
References
Bundesbank (2014), Monthly Report, February, pp. 64–66.
Calza, A., T. Monacelli and L. Stracca (2013), “Housing Finance and Monetary Policy”, Journal of the European Economic Association, 11(S1):101–122, January.
Flatow Advisory Partners (FAP) (2014), FAP Barometer for Commercial Real Estate Financing, 2014:Q2.
Muellbauer. J. (2013), “Housing and the Macro-Economy: Inflation and the Financial Accelerator”, presentation at the Dallas Fed-IMF-JMCB conference, November.
Steininger, M. (2014), “German Property Market – Current Topics and General Trends”, Bulwiengesa presentation, May.
Prepared by Jérôme Vandenbussche (EUR).
