Why house prices in Germany are rising
Experts agree that the second consecutive quarterly increase in property prices signals an end to the downturn that began in late 2022.
Persistent housing shortages, robust demand – especially in major cities – and the stabilization of mortgage rates are driving the latest surge, with forecasts pointing to further increases in the coming years.
Where are prices rising fastest?
In Germany's seven largest cities – Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart, and Düsseldorf – the average price of an apartment has climbed by 3.8 percent year-on-year and 2.4 percent compared to the previous quarter.
Large independent cities outside these metropolitan hubs saw even stronger growth, with apartment prices up 6.1 percent year-on-year.
Densely populated rural districts also experienced increases, while sparsely populated rural areas reported slight declines
What is fuelling the price increases?
The upward trend is partly driven by a chronic housing shortage.
'The construction of new housing has slowed dramatically, while demand in cities like Berlin is higher than ever,' observed Dr. Michael Voigtländer, real estate expert at the German Economic Institute (IW).
Government efforts to address the shortage include the so-called
'construction turbo' program
, which aims to accelerate planning and approval procedures.
However, the BVR warns that only 64% of housing demand will be met in 2025, with the figure expected to fall to 58 percent in 2026.
Rising rents are also fuelling the demand for homeownership.
READ ALSO:
How you can challenge Germany's controversial property tax on your home
But perhaps the most important driver behind the trend is the fall in interest rates.
When interest rates rise, borrowing becomes more expensive, typically leading to lower demand for real estate and slower or negative price growth. On the other hand, falling interest rates make mortgages cheaper, stimulate demand, and support higher property prices.
Recent history in Germany provides a perfect case study in how this works. Following the financial crisis in 2008, more than a decade of ultra-low interest rates fuelled a property boom in Germany, which only came to an end when the European Central Bank (ECB) raised rates in 2022–2023 to combat inflation.
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The result was a sharp correction in the German property market, with nominal prices falling by nearly 7 percent in 2023.
As the ECB reversed course and began cutting rates in mid-2024, mortgage rates dropped to their lowest levels in two years, and buyers and investors started returning to the market in increasing numbers.
Outlook: What Comes Next?
If you spend enough time in a city like Berlin, Hamburg or Munich, you will eventually hear someone say, 'I should have bought property ten years ago.'
In truth, people would have been better off buying twenty years ago. According to the Deutsche Bundesbank, residential property prices in Germany only began to rise markedly after 2010, following nearly two decades of stagnation or decline.
Since then, however, prices for residential property in Germany's largest cities has risen by over 33 percent, far outpacing income growth.
Currently, the National Association of German Cooperative Banks (BVR) expects residential property to continue rising – by 3.2 percent in 2025 and 3.1 percent in 2026, reflecting both the rate environment and persistent supply shortages.
REVEALED:
Where buyers can find the most property for sale in Germany
Rent controls and government incentives may moderate the pace of growth in some areas, but the underlying supply-demand imbalance remains unresolved.
Meanwhile property prices have become increasingly disconnected from incomes, so the dream of owning a home has become next to impossible to realise for many people in the country.
For anyone who can still afford to get on the property ladder, however, the chances are that the value of your home will continue to rise.
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Residential property prices in Germany rose by 3.8 percent in the first quarter of 2025, compared with the same period in 2024. The National Association of German Cooperative Banks (BVR) is predicting that prices will rise by 3.2 percent this year and by 3.1 percent in 2026. Experts agree that the second consecutive quarterly increase in property prices signals an end to the downturn that began in late 2022. Persistent housing shortages, robust demand – especially in major cities – and the stabilization of mortgage rates are driving the latest surge, with forecasts pointing to further increases in the coming years. Where are prices rising fastest? In Germany's seven largest cities – Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart, and Düsseldorf – the average price of an apartment has climbed by 3.8 percent year-on-year and 2.4 percent compared to the previous quarter. Large independent cities outside these metropolitan hubs saw even stronger growth, with apartment prices up 6.1 percent year-on-year. Densely populated rural districts also experienced increases, while sparsely populated rural areas reported slight declines What is fuelling the price increases? The upward trend is partly driven by a chronic housing shortage. 'The construction of new housing has slowed dramatically, while demand in cities like Berlin is higher than ever,' observed Dr. Michael Voigtländer, real estate expert at the German Economic Institute (IW). Government efforts to address the shortage include the so-called 'construction turbo' program , which aims to accelerate planning and approval procedures. However, the BVR warns that only 64% of housing demand will be met in 2025, with the figure expected to fall to 58 percent in 2026. Rising rents are also fuelling the demand for homeownership. READ ALSO: How you can challenge Germany's controversial property tax on your home But perhaps the most important driver behind the trend is the fall in interest rates. When interest rates rise, borrowing becomes more expensive, typically leading to lower demand for real estate and slower or negative price growth. On the other hand, falling interest rates make mortgages cheaper, stimulate demand, and support higher property prices. Recent history in Germany provides a perfect case study in how this works. Following the financial crisis in 2008, more than a decade of ultra-low interest rates fuelled a property boom in Germany, which only came to an end when the European Central Bank (ECB) raised rates in 2022–2023 to combat inflation. Advertisement The result was a sharp correction in the German property market, with nominal prices falling by nearly 7 percent in 2023. As the ECB reversed course and began cutting rates in mid-2024, mortgage rates dropped to their lowest levels in two years, and buyers and investors started returning to the market in increasing numbers. Outlook: What Comes Next? If you spend enough time in a city like Berlin, Hamburg or Munich, you will eventually hear someone say, 'I should have bought property ten years ago.' In truth, people would have been better off buying twenty years ago. According to the Deutsche Bundesbank, residential property prices in Germany only began to rise markedly after 2010, following nearly two decades of stagnation or decline. Since then, however, prices for residential property in Germany's largest cities has risen by over 33 percent, far outpacing income growth. Currently, the National Association of German Cooperative Banks (BVR) expects residential property to continue rising – by 3.2 percent in 2025 and 3.1 percent in 2026, reflecting both the rate environment and persistent supply shortages. REVEALED: Where buyers can find the most property for sale in Germany Rent controls and government incentives may moderate the pace of growth in some areas, but the underlying supply-demand imbalance remains unresolved. Meanwhile property prices have become increasingly disconnected from incomes, so the dream of owning a home has become next to impossible to realise for many people in the country. For anyone who can still afford to get on the property ladder, however, the chances are that the value of your home will continue to rise. Advertisement
