01 Jul Is Germany experiencing a housing bubble
A German Property Bubble?
This is the second in my series about property market bubbles and how it affects Germany. Many people are asking “Is there a bubble forming here?”. The first one was Why German’s think the property market will crash. In that article, I talked about being anchored in your history bias. About how your experiences growing up affects your worldview. German and especially expats are struggling with the idea of a booming housing market. Either they don’t believe it or dismiss it as a bubble which will burst taking prices down 30 plus percent.
This one from Bloomberg
Or this one from DW English Media
So who’s right?
I don’t think discussing the technical side of the economy will help. Things like the M2 money supply or the ECB and QE (Quantitative Easing). When it comes to bubbles you’re better off looking at investor attitudes instead, As Doug Hoyes mentions in podcast number 199 of Debt Free in 30 – The Podcast Podcast. Personal finance is more about behavior than math. I think that applies just as much to housing as it does to your personal budget. At the peak of the recent housing bubble in Canada, the normal calm Canadian approach to buying a house was replaced by FOMO or Fear of Missing Out. People began sleeping out overnight at new developments. Not to buy a place but simply be first in line to put an offer in. There are reams of stories about people putting in bully offers, going way over asking. There are all classic signs of a bubble.
Now one could argue that Germany is experiencing this. Talk to any real estate agent (Makler) and they’ll tell you it’s not just a seller’s market but a huge seller’s market. Berlin and Frankfurt are booming. But this has a lot to do with how Germans feel about life. My parents moved 6 times in their life, my German in-laws who moved to Canada after the war bought a place and moved once. And then only due to business needs. German’s tend to buy and never move again. So this has a knock-on effect on the market. The second reason is that prices are low compared to other European cities. The final reason is outside of Berlin and perhaps Munich prices are very reasonable and it’s not hard to find a property with 4% yield. So I’m going to step out on a limb and say that Germany is not experiencing a housing bubble. And as a matter of fact, I think the market not only has legs but has a ways to go. Remember this image from the last post?
The German housing market is right where the red line is. We are at what I believe is the beginning of what is going to be a long and profitable bull market. But does this mean that buying is a sure thing? Absolutely not: as with rental market the housing market is very different from the market in the English speaking world. I wrote the book The Complete Guide to German Property Investment to help people navigate the property market here.
Whether you’re an expat looking to buy a place to live in or an investor looking for the best deal my book can help.