Real estate prices surge significantly over a 12-month period.
Germany's Real Estate Market: Prices Soar Amid Demand and Supply Imbalance
A new study has revealed a significant increase in residential real estate prices across Germany, particularly in major cities, over the past year. The surge in prices is primarily attributed to strong demand amid persistent supply shortages, high construction and financing costs, and stabilizing interest rates.
According to the study, conducted by Baufi24 and analysing 200,000 real estate transactions since the beginning of the Corona pandemic, the average square meter price for single-family homes in Germany rose by 5.08% from November 2020 to April 2021, amounting to 3,708.72 euros. Similarly, the average square meter price for owner-occupied apartments in the seven major German cities (Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich, Stuttgart) increased by 6.08%, ranging from 1,790 euros in Bremerhaven to 9,413.21 euros in Munich. In contrast, Bremerhaven saw a decrease of 3.57% in the average square meter price for owner-occupied apartments during the same period.
The study found that key factors driving this price increase include high demand and persistent supply bottlenecks, stagnation in new construction despite rising building permits, interest rate environment and market sentiment, structural economic and demographic factors, and ongoing challenges in the construction sector.
While the study did not specify the average income used as a reference for determining affordability, it did highlight that the increase in prices in smaller cities with over 100,000 inhabitants, such as Halle/Saale (15.23%), Kiel (13.27%), and Hagen (12.61%), may impact affordability for apartment buyers in these areas. However, the study did not provide information about the future trends of the real estate market in the seven major German cities or the impact of the flood of money looking for a sensible place to be invested on the market.
The expectation of interest rate cuts in 2025 has started to mitigate buyer reluctance, leading to renewed investment activity. This is seen as a potential stimulus for further price increases as buyers re-enter the market with more favorable financing prospects. However, the study did not provide any information about the current interest rates on the real estate market in the seven major German cities.
Urbanization trends and sustained foreign and domestic demand escalate competition for limited housing, especially in major urban areas, compounding affordability issues and pricing tensions. The rental market also suffers from supply shortages, feeding into higher prices. The study did not specify whether the increase in prices in smaller cities with over 100,000 inhabitants was more significant than in the seven major German cities.
Construction sector indicators also reflect challenges, with the Euro Area Construction PMI showing a decline in mid-2025, signalling ongoing subdued construction activity that hampers supply growth to meet demand. The study did not provide any information about the future trends of the German real estate market.
In summary, the significant price increases in Germany’s urban residential real estate market stem from a strong imbalance between robust demand and constrained supply exacerbated by high construction costs and financing challenges, now coupled with improving market sentiment due to expected interest rate reductions. The study underscores the need for increased construction activity and affordable housing solutions to address the growing affordability issues in major German cities.
[1] Baufi24, (2025), Residential Real Estate Prices in Germany: Analysis and Trends [2] ImmobilienScout24, (2025), Interest Rates and Real Estate Market Trends in Germany [3] Bundesverband der Deutschen Immobilienwirtschaft e.V., (2025), Demographic and Economic Factors Impacting the German Real Estate Market [4] Statista, (2025), Building Permits in Germany [5] IHS Markit, (2025), Euro Area Construction PMI
- The surge in residential real estate prices in Germany, especially in major cities, is influenced by factors such as investing in real estate due to improving market sentiment and interest rate reductions.
- The impact of personal-finance, specifically interest rates on the real estate market, is evident in major German cities, as the expectation of interest rate cuts in 2025 has stimulated renewed investment activity.
- The housing-market in smaller cities with over 100,000 inhabitants has experienced significant price increases, which may affect personal-finance and affordability for apartment buyers in these areas, similar to the challenges witnessed in the seven major German cities.
