German house prices climb for third straight quarter as market stabilises

German house prices rose 3.2% in the second quarter, marking the third consecutive quarterly gain as Europe’s largest property market finds its footing after a deep recession. Prices are still about 9% below their 2022 peak, suggesting stabilisation rather than a return to bubble conditions as the sector contends with higher interest rates and refinancing pressures.

The increase, slightly smaller than the first quarter’s 3.5%, extends a trend that began in late 2024 after two years of declines. Destatis data show housing bucking the pattern of commercial real estate, where offices and retail remain weighed down by remote working and online shopping.

“The crisis isn’t a Lehman-style bang but rather coming in fits and starts,” said Andreas Naujoks, a partner at law firm Noerr. With property accounting for around 20% of GDP and nearly one in ten jobs, the sector is still working through the aftershocks of the low-interest era.

East pulls ahead, West corrects

Regional divergences are sharper than the national average implies. Eastern Germany is showing the strongest momentum, with asking prices rising in 72 of 76 cities and districts — some by more than 13% in a year. Rural Brandenburg leads, with Oberhavel up 13.1% to €3,409 per square metre and Uckermark up 12.7% to €2,076, as buyers priced out of Berlin seek cheaper options. For investors, the growth highlights the appeal of secondary and rural markets, though liquidity and tenant stability remain hurdles for institutional capital.

Germany’s big cities are no longer moving in sync. According to UBS, prices in Frankfurt and Munich have fallen roughly 20% since 2022 peaks when adjusted for inflation, defusing bubble concerns. “The residential property markets in Munich and Frankfurt have stabilised after the correction,” said Maximilian Kunkel, chief investment strategist for UBS in Germany, adding that supply shortages and a solid labour market point to medium-term rent and price recovery.

Destatis data confirm the split: in the seven largest cities, apartments rose 2.4% year-on-year in Q2 while houses slipped 0.2%. Outside the top seven, apartments jumped 5% and houses nearly 4%, underscoring how demand is shifting to cheaper regions.

Stuttgart stands out as an anomaly: houses now cost more per square metre (€4,167) than apartments (€3,909). “In Stuttgart, almost anything goes,” said Roland Lenz of Dr. Klein, describing buyers’ unusual willingness to overlook costs.

Leipzig (+10.8%), Halle (+12.4%) and Rostock (+10.7%) led with double-digit gains. “Demand is meeting a comparatively low price level, which leaves room for more significant increases than in western Germany,” said Robert Wagner, managing director at portal Immowelt. Still, most eastern districts remain below 2022 highs, and in rural Thuringia prices are up to 16.6% lower than three years ago — offering selective entry points for patient investors.

Refinancing wall looms

The upturn is tempered by a surge in insolvencies and refinancing risks. Property insolvencies rose 33% in the year to August, the fourth annual increase, according to real estate consultancy Falkensteg. “Significantly higher refinancing costs and restrictive lending could lead to acute liquidity bottlenecks and further drive up insolvencies,” warned Christian Alpers, Falkensteg’s head of real estate.

Higher-for-longer interest rates remain the biggest drag. The property boom built on cheap money and cheap energy has ended, leaving leveraged owners facing a harsh adjustment. Deloitte’s Michael Müller sees cautious optimism, arguing that normalising rates and stabilising costs mean the low point was passed last year. But affordability remains stretched: Munich remains Germany’s costliest city (€7,441/sqm for apartments, €21.9/sqm rents), pushing buyers into surrounding areas.

Germany’s 3% gains look tame compared to double-digit surges in Poland (+19%) and parts of the Balkans. The country’s muted rebound reflects structural headwinds: weak growth, financing bottlenecks and an affordability crunch.

REFIRE: German house prices are finding a floor after a painful adjustment, but this is no return to the old boom. The quarterly gain looks healthy, yet refinancing risks and rising insolvencies mean the recovery is fragile. Eastern Germany offers the sharpest growth — up to 13% in some regions — but liquidity risk is real. Frankfurt and Munich have shed their bubble risk, but that also means the easy money is gone. For institutional investors, timing is everything: watch the refinancing wall, where distress could unlock the best opportunities.