The demand for houses and apartments has collapsed. But according to the Bundesbank, the residential real estate market as a whole offers no cause for concern, especially for private homeowners.
Because of the drastically increased interest rates, significantly fewer people are buying houses and apartments or having them built. So demand has collapsed. But according to the Bundesbank’s new financial stability report presented today in Frankfurt, private homeowners in particular do not have to worry about the residential real estate market as a whole.
For years, the Bundesbank has warned about the danger of real estate bubbles in Germany. However, she was careful not to use the alarming term “bubble”. Rather, she spoke about the fact that in some cities houses are overvalued and have too much debt.
In view of the overall cooling of the market, Bundesbank board member Claudia Buch no longer wanted to repeat this warning. Overall, the value of private real estate appears to be secure, even if prices have fallen somewhat, which seems economically sensible in many cities.
More expensive Home financing
In principle, Buch is not worried about existing real estate financing from private individuals. She emphasized that around 40 percent of private real estate loans have a fixed interest rate for at least ten years. On average, according to Buch, these contracts ran for another five years. Only then do private debtors have to take care of new financing.
The higher interest rates that will then probably be due will not help private individuals out of the curve if they have continually repaid their debt and the loan amount therefore decreases.
However, the Bundesbank’s data also means that 60 percent of private real estate loans have a short term or even variable interest rates. Behind this may be private individuals who have just bought and have taken on debt at the now high interest rates. They may rely on the situation being different in five years and then be able to refinance more cheaply.
Worried about the Commercial real estate
But the numbers also show that there are many people who have to refinance in the short term and therefore at a much higher price than before. Thanks to the good job market, many people earn very well. “This of course supports the debt sustainability of private households,” said Buch. Many Germans can afford higher rates. If necessary, homeowners have to sell – the Bundesbank is not responsible for individual fates, but rather for ensuring that the system remains stable.
The guardians of financial stability are much more concerned about the commercial real estate market. Bundesbank board member Buch said she sees short-term risks here. 30 percent of bank loans for companies are with real estate companies, said Buch. They are “particularly affected” by the increasing number of corporate bankruptcies.
Buch expressly avoided addressing the problems of Austrian businessman René Benko’s ailing Signa Group. But it was clear that the high number of existing and new buildings as well as the Galeria Karstadt Kaufhof department store group, which belongs to Signa, not only worried city planners and mayors, but also banks.
Banks overall stable
Overall, German banks are doing well, according to the stability report. Profits have increased and overall the money stores are well filled to compensate for any shortfalls. This also only applies broadly and not to all banks.
Since interest rates have risen, old-time, long-term businesses have become less valuable to banks. The banks would actually have to write down values. Some people can’t afford that. “Almost two thirds of the savings banks and cooperative banks now have hidden liabilities,” said Buch. “Silent burdens” is a commercial euphemism for hidden economic explosive devices. The Bundesbanker’s advice on precautionary measures for future risks could also be understood as a warning to the savings banks, Volks- and Raiffeisenbanks.
Risks from the climate crisis
New risks arise from climate change. “Previous investment, production and consumption patterns are being questioned or are simply no longer worthwhile,” said Buch.
So far it is fairly clear who will lose out when it comes to climate change and the transformation of companies. “We don’t know today who the winners of the transformation are,” says Buch. This makes it very difficult for banks to assess risks for new financing.
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