Mortgage rates edge toward 4% as German residential market rebounds

Germany’s residential property market is regaining momentum, with private buyers returning in force despite mortgage rates edging higher. A new forecast from Hamburg-based GEWOS Institute suggests residential transactions will rise 14% to 656,000 this year, with volumes climbing 18% to €221bn, up from €188bn in 2024.

The rebound follows the sharp downturn of 2022, when surging rates ended the boom and triggered price declines. Three years on, confidence has improved as financing costs stabilise and high rents push households into ownership. “The reluctance to buy on the German property market is gradually dissipating, with private buyers in particular returning,” said Sebastian Wunsch, GEWOS head of real estate analysis.

Residential deals now account for more than three-quarters of Germany’s market, with total turnover expected at €277.2bn in 2025, up 16% year-on-year, across 834,100 sales. For investors, the implications are clear: activity is broadening again, prices remain below previous peaks, and multifamily yields are once again attracting capital.

GEWOS data show existing properties leading the recovery. Owner-occupied home sales should rise 13.1% to 253,600, generating €91.9bn in turnover (+17%), while condominium sales are forecast to climb 15.8% to 308,400, worth €80.2bn (+20.3%). First-time sales of new-build flats are rising strongly, up nearly 31% to 41,700, though overall new-build volumes remain weak.

Multifamily housing is also regaining traction. GEWOS forecasts 38,700 transactions this year (+11.6%), generating €36.5bn (+16.4%). Wunsch notes that larger deals involving apartment buildings are reappearing as institutional investors return, encouraged by firmer rental yields and higher rents.

Construction approvals are showing signs of life after years of decline. In July, 22,100 new homes and conversions were permitted, up 30% year-on-year but still from a very low base — July 2024 marked the weakest result since 2009. Approvals for January to July reached 131,800 units (+6.6%), with single- and multi-family housing driving the increase. Even so, building land and new developments remain more than 40% below pre-crisis levels, and land sales at €12.6bn are forecast to remain over 50% below 2021 volumes.

Interest rates will be key for broad recovery

The primary risk to the recovery is financing. Ten-year loans currently cost around 3.7%, up from 3.3% a year earlier. FMH founder Max Herbst warns that rates could reach 4% by year-end, depending on Bund yields and investor confidence in Germany’s fiscal stance. “It depends on whether investors believe Germany can turn its economy around, trust the Federal Republic as a debtor or demand higher risk premiums,” he said.

For buyers reliant on leverage, even small rate moves carry weight, though the current trend is more gradual than the shock of 2022, when borrowing costs tripled in six months. Market fundamentals provide some offset: prices remain 6% below peak levels for existing flats and 7% for owner-occupied homes, and supply has improved significantly. Value AG data show listings for homes up 120% since end-2021, and condominium supply up 77% nationwide.

Rental markets continue to underpin ownership demand, particularly in urban centres where supply remains constrained. Rental housing availability has fallen by a quarter since 2021, while average completion times for new units stretch beyond 34 months. GEWOS does not expect the imbalance to ease soon.

For institutional investors, the message is mixed. Transactions are up double digits, volumes are rising, and multifamily assets are again yielding attention, but the outlook hinges on interest rate stability. With mortgage costs threatening to breach 4%, today’s window of opportunity could narrow. Prices remain below peak, supply is broadening, and buyer sentiment has improved — but the recovery’s sustainability will depend on whether Germany can keep financing conditions from tightening further.