The Fed steered monetary policy cautiously at its last meeting, while the ECB is open to cutting interest rates in June, which many market participants are hoping for. Do you expect a rapid recovery if these interest rate cuts take place?

Long-term financing rates, such as for 10-year real estate loans, already reflect anticipated developments. A previous cut in financing rates in December 2023 due to expected prime rate adjustments showed little impact on interest rates. Although inflation is more favorable than forecast, there could be a further slight reduction in interest rates, albeit rather gradually. Nevertheless, no abrupt improvement in the financing situation on the real estate market is expected. However, rising new contract rents and the new special depreciation allowance are likely to boost transaction activity again.

Many properties are currently staying on the market for a longer period of time, which gives buyers room to negotiate. How long is this window of opportunity likely to remain open?

It can be assumed that this window of opportunity will close relatively quickly. The decline in residential construction is exacerbating the shortage of living space, exacerbated by the strong influx of people into major cities, including urgently needed international skilled workers. As new contract rents rise and people become accustomed to the current level of interest rates, demand for properties to buy will rise again, which will increase competition for real estate. There are currently hardly any price reductions, particularly in urban centers with a good energy balance. Only properties in need of renovation in remote areas could continue to represent a buyer’s market.

In 2023, prices for condominiums in the seven top metropolitan areas fell by an average of 5.8 percent, according to data from the Federal Statistical Office – the biggest decline in around 60 years. How quickly could prices recover and in which cities could this happen particularly quickly?

House prices are expected to rise again as early as this year, albeit not as strongly as in the 2010s. Based on the DIW’s forecast for only 177,000 new apartments in 2025 with a significantly higher demand, new contract rents are rising rapidly, from 4 percent in 2020 to 6 percent annually now. This makes real estate more attractive, especially as lower interest rates are expected in the long term. However, local demand, determined by household numbers and income trends, is decisive for price trends. Major cities such as Berlin and Munich, where service companies are particularly active and income growth is more dynamic than in the industrial sector, are likely to see particularly strong growth.

People who bought a property around ten years ago were able to finance themselves at significantly lower interest rates. Recently, JPMorgan CEO Jamie Dimon commented on the long-term possibility of significantly higher interest rates. Should real estate buyers speculate on falling interest rates now?

Short-term interest rate forecasts are always challenging, as they are heavily dependent on expectations regarding inflation trends, short-term interest rates and the general economic situation. In the long term, however, interest rates are expected to fall as the demographic trend in industrialized countries, in particular rising life expectancy, increases the savings rate. More savings mean more supply on the money market and falling interest rates. However, this prospect does not benefit immediate investors or home buyers. However, partial financing with shorter fixed interest rates could be used to benefit from this development, taking into account possible risks, e.g. geopolitical uncertainties.