High Property Prices: Should I Still Buy a Home in Germany?
Property prices in Germany keep rising. We tell you if buying still makes sense at all!Updated on 19 May 2025
We cannot solve global problems, but we can help and show you at least what concerns the property prices: In many cases it still makes sense to buy despite high purchase prices for houses and apartments. This is especially true for "expensive places" like Berlin, Munich, Hamburg, Frankfurt am Main and Stuttgart.
Why are property prices in Germany rising so steeply?
For a few years, the property prices seemed to know only one direction: steeply upwards. Therefore, there have been repeated warnings of a property bubble that would soon burst. It was also predicted that the COVID-19 pandemic and the related economic consequences would cause the prices of houses and apartments to collapse. Most recently, the increased interest rates for mortgage loans and the uncertainties associated with the war in Ukraine were supposed to bring an end to the property boom in Germany. And what have purchase prices for property in Germany done? They have continued to rise undeterred.
There are numerous reasons for this:
Supply and demand: The persistent demand continues to be a driver for higher prices, especially now that population growth has received a further boost from people seeking shelter from the war in Ukraine.
Another factor pushing up property prices is the cost of construction: In 2021 alone, the price of construction lumber has increased by 83 % and that of rebar steel by 44 %. Added to this are rising energy prices, wage increases, and ever-stricter specifications on sustainability and energy-efficient construction.
There are those who speak of a “housing crisis” in Germany. What is meant by this is that there is not enough living space. A study by the RWI Leibniz Institute für Wirtschaftsforschung shows a need for almost 300.000 new apartments every year, especially in the major cities, urban areas, and university towns². This housing shortage is additionally fueling demand and, thus, prices.
People want ever-larger apartments and houses: The average living space per inhabitant in Germany is growing continuously. Whereas in 1990, each German lived in an average of around 38 square meters, last year, this increased to 48,8 square meters, according to the information service of the Informationsdienst des Instituts der deutschen Wirtschaft. Four-room apartments, which used to be inhabited mostly by families with several children, are now often home to only two people. This is driving the housing shortage even further.
Last but not least, with interest rates on bank accounts, low houses and apartments in Germany are also increasingly traded as investment properties to provide for old age.
These factors can and will change, of course. Demographic change, for example, is likely to reduce demand in the long term, while modern housing concepts such as Tiny Houses and communal living will reduce the need for personal living space. Currently, rising interest rates combined with rising prices are making properties less attractive as an investment. However, it typically takes some time before such and similar trends have a noticeable impact on the real estate market.
Is it too late to buy a home now?
If you're currently contemplating buying a house or an apartment, you'll surely be annoyed that you didn't do so one, two, or even more years ago when prices were still a bit more moderate.
These thoughts are of little help because property prices have been rising almost continuously for many years. Since 2010, houses and apartments in Germany have increased in value by 5,5 % each year on average, according to the house price index of the Federal Statistical Office.
And it is not only purchase prices that have risen but also interest rates for mortgages. While interest rates of less than 1 % were not unusual in recent years, mortgages now cost two or even three times as much. But, viewed in a historical context, interest rates in the range of 2,5 % to 3 % are still considered very moderate. Up to around 15 years ago, interest rates of 5 % or significantly more were the standard rather than the exception.
Plus, The price increases in properties, which are currently troubling your decision to buy, turn into something wonderful the moment you become a proud homeowner: they increase the value of your property and thus your prosperity!
So overall, it is true that the dream of homeownership has become significantly more expensive in recent years. However, prices are expected to continue rising for a few more years, and in times of currently high inflation and strongly fluctuating stock markets, concrete gold is one of the most attractive and reliable investments available.
Of course, there are many things to consider when making such a major, sweeping decision. First and foremost, the question: How much house can I afford? Our affordability calculator will give you the answer. And for all other questions, you can get the support of our mortgage experts.
Up to what price does it make sense to buy a property?
Whether a house or an apartment is worthwhile for you in your present state of life can be calculated quite clearly and expressed in concrete figures, with the break-even price that expresses what purchase prices and rent prices lead to the same expense.
Thereby, the following facts are needed:
The price you currently pay per square meter as rent (cold rent) and
the purchase price per square meter for the house or apartment you would like to buy.
We have calculated this for the cities of Berlin, Munich, Hamburg, Frankfurt am Main and Stuttgart and used the current average rents and average purchase prices for an apartment with 60-80 sqm that is no more than 10 years old.
Our table gives you the break-even point at which purchase prices and rent prices lead to the same expense. We calculate with an assumed annual value increase in the apartment of 3 %.
For example, if you were currently renting an apartment in Berlin for 21.45 € per square meter, it could be worth buying an apartment up to a price of 31.175 € per square meter. When making this calculation, we have also taken into account the local incidental purchase costs as well as the costs of a mortgage at an interest rate of 2,5 % and maintenance costs of 0,5 % per year, and assume an annual increase in the value of the apartment of 3 %.
Note: You may ask why we assume a 3 % annual increase in value. Because over the long term, we expect home prices to increase at the rate of inflation plus at least one percent. This is consistent with historical home price data. And even though the inflation rate is much higher right now, we are on safe ground historically with our assumption of a 1 % additional real increase in value.
The average current purchase price for comparable apartments in Berlin is 7.109 €, so there is still a wide margin between present prices and the calculated break-even point.
What you can see clearly is that, despite the sharp rise in purchase prices for houses and apartments in Germany, it is nowhere near too late to buy, rather it still makes sense to buy a property in most cases.
