Germany's residential market reprices along the Bund curve

German residential affordability has improved since 2023. Higher wages and mortgage rates dipping below 4% in late 2025 have eased monthly burdens while prices have risen only moderately.

The latest Interhyp-IW Cologne index shows that in October 2025, model households allocated 29% of disposable net income to finance a 100 sqm condominium, an index value of 128. In October 2023, the burden was 32% (index 118). During the 2015 low-rate peak, the index reached 221, when households needed 17% of income to service mortgages, but a return to those ultra-low funding costs is unrealistic.

IW economist Dr. Michael Voigtländer said the recent improvement reflected wage growth, slightly lower mortgage rates, and moderate price increases so far. Interhyp CEO Jörg Utecht highlighted the shift, stating that the low-rate period was an anomaly and that the market had reached a new equilibrium, and added the warning that rates could still rise again, tightening serviceability. For investors, the index now reflects funding costs and income serviceability, priced from the Bund yield curve rather than ECB short rates.

Markets are repricing along income lines

Affordability remains tight in the largest cities. Across the Top 7 (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Stuttgart, Munich), the index averaged 90, requiring 39% of net income to buy a property. Munich recorded 81 points (43%), Hamburg 84 (42%), Berlin 85 (41%), Frankfurt 94 (37%), Cologne 98 (36%), Düsseldorf 102 (34%), and Stuttgart 118 (30%). Stuttgart and Düsseldorf are the most affordable among the largest cities in the index. Economists caution that recent improvements relied on several factors moving together, a pattern that may not hold evenly through 2026.

Coastal districts led the affordability rebound. Nordfriesland rose 29% over two years, Vorpommern-Rügen 23%, Dithmarschen 22%, Rostock district 23%, and Rostock city 21%. Voigtländer said the rebound reflected stable prices meeting robust income growth, not only tourism demand. Coastal and secondary markets now show better entry economics than during the low-rate period, when pricing pressure concentrated in city cores.

Policy levers can trim friction at the margins. The study simulated two interventions from a 29.2% nationwide burden. Halving real estate transfer tax would reduce the ratio to 28.3%. A state subordinated loan of up to €150,000 at 2% would reduce the burden to 26.5%. Combined, the ratio would fall to 25.6%. Simulated relief in high-price districts ranged from €75,000 to €85,000, with Frankfurt highest at €85,000. The relative impact was strongest in rural districts where €150,000 could cover a high share of financing needs.

Thuringia's real-world transfer-tax cut from 6.5% to 5% in January 2024 resulted in double-digit millions in lost revenue and no visible lift in transactions. Legal transactions fell from 49,300 in 2023 to 45,600 in 2024, with 2025 extrapolations flat versus 2024. This shows that tax cuts alone do not unlock demand when income-to-debt burdens stay high relative to financing costs.

Germany is entering a period with lower buyer churn and longer hold periods, sustaining rental pressure. Major cities are becoming higher-equity markets by default, and development models depending on high leverage and thin equity buffers remain rate-sensitive. Coastal and secondary markets are showing a stronger wage-price mix, supporting wider regional exposure. The pricing anchor for housing is the Bund curve, not ECB short rates.

What this means for the real estate sector is that tighter affordability in core cities can sustain scarcity value in standing portfolios, while the coastal and secondary rebound supports assumptions about broader regional allocation and equity-led underwriting in German residential investment.