Real Estate Prices

Over the last few years residential real estate prices in Germany have soared, especially in the metropolises of Munich and Berlin. This development has provoked concerns that speculation is creating a housing bubble in Germany similar to those in Spain and the United Kingdom. With the help of the User cost of Housing Approach it can be shown, however, that in most counties in Germany the current price trend is still fundamentally justified. Though in some cases dramatic, the increases are the result of property prices making up lost ground, having largely stagnated or even fallen prior to 2008. A sudden reversal of the current low interest rate policy would only trigger the slight need for correction typical of a speculative bubble. Were it to endure, however, such a policy would run the risk of changing future behaviour patterns.