Germany's Real Estate Market in 2025: Stabilization After the Decline

After two years of declining prices, Germany’s housing market is showing signs of stabilization. The recovery is driven by increased demand in major cities, moderate mortgage growth, and a sharp drop in new construction activity, as reported by Global Property Guide.

Market Correction and Reversal: 2022–2025

Germany’s decade-long property boom ended in 2022. Nominal housing prices fell by 3.94% in 2022 and 7.11% in 2023. Adjusted for inflation, the real decline reached 11.53% and 10.3%, respectively. Inflation, rising ECB rates, and weak consumer sentiment drove the downturn.

By 2024, early signs of recovery appeared. In Q4, Destatis reported a 1.93% YoY price increase—the first in nine quarters—although adjusted real growth remained slightly negative (-0.35%).

In Q1 2025, the average price of secondary housing reached €3,403 per sq. m (+1.6% YoY), while new builds averaged €5,478 (+2.9%). Munich remains the most expensive market, with prices reaching €11,454 per sq. m for new homes.

Construction Slowdown Deepens Supply Crisis

Germany issued only 215,920 construction permits in 2024—the lowest since 2010. Although applications rose slightly in early 2025 (+3.36% YoY), experts argue a recovery is still far off.

The Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) estimates the country will need 2.56 million new units by 2030—around 320,000 annually. Berlin, Munich, Hamburg, and Frankfurt top the list of cities with the largest shortages.

Developers have delayed projects due to rising costs and interest rates. Berlin’s Covivio and Munich’s Instone Real Estate have postponed major residential developments, while prolonged permitting timelines further hamper recovery efforts.

Rental Market: Slowing Growth, Solid Demand

Renting dominates German housing: 52.2% of households are tenants. Rent growth slowed in 2024 (3.5%) compared to 5% in 2023. Some cities like Berlin saw minor declines (-1%).

Munich remains the most expensive rental market (€23.33/m²), followed by Berlin (€19.23) and Frankfurt (€18.33). Leipzig is the most affordable major city at €10.45. National rental yields average 3.82%, reaching 4.99% in Leipzig and 4.76% in Berlin.

Mortgage Recovery Gains Momentum

Falling ECB rates helped revive the mortgage market in 2024–2025. As of March 2025, average new loan rates dropped to 3.60%. Total mortgage issuance reached €198.4 billion in 2024, up 23.1% YoY. The market grew 37.5% YoY in Q1 2025 alone.

However, experts note that ultra-low rates below 1% were an anomaly. Germany’s total housing debt stands at €1.61 trillion (37% of GDP), below the 2021 peak of 40.4%.

Macroeconomics and Policy Reforms

Germany’s economy contracted by 0.3% in 2023 and 0.2% in 2024, with zero growth expected in 2025. Inflation has eased to 2.1%, and unemployment stands at 3.6%. Labor shortages persist, particularly in healthcare and education.

Analysts forecast housing prices will rise by 3.5% in 2025 and around 3% annually through 2027. Despite macroeconomic headwinds, strong demand and undersupply remain key price drivers.

Chancellor Friedrich Merz’s new government, in power since February 2025, has prioritized housing construction. Reforms include faster permitting, land availability expansion, and new construction technologies. Rent controls will also be extended, along with tighter rules on furnished short-term rentals.