German home prices to rise three percent through 2028

Residential property prices in Germany are expected to rise by approximately 3% annually through 2028, according to a recent Reuters poll of property analysts. This growth is projected to outpace overall inflation, further squeezing affordability for first-time buyers while maintaining high rental costs across the country. After experiencing its most significant downturn in decades, the housing market in Europe's largest economy has begun to stabilize. Prices have risen nearly 6% since reaching a trough in early 2024. A positive indicator for the sector is the rise in building permits in 2025, which marked the first annual increase in four years and suggests a sustained recovery. The poll of 12 analysts, conducted between February 24 and March 5, indicates that average home prices will likely increase by 3.3% in 2026, followed by 3.0% growth in both 2027 and 2028. This outlook remains largely consistent with previous estimates, despite expectations that the European Central Bank will keep interest rates steady for the remainder of the year following a period of rate cuts. However, the market recovery faces potential headwinds. Geopolitical instability in the Middle East has raised the possibility of inflation-driven interest rate hikes. Carsten Brzeski, global head of macroeconomics at ING Groep N.V., highlighted the fragile nature of the current upturn. > The market’s recovery is likely to continue but remains shaky. Brzeski further noted that broader economic factors are weighing on buyer sentiment. > Consumers remain cautious given high levels of uncertainty both for geopolitics but also domestic policies, the rise in unemployment and slowing wage growth. Affordability remains a critical issue, with ten out of 12 analysts predicting that homes will become even less accessible for first-time buyers over the next year. This trend is expected to push the average age of new homeowners higher. A severe shortage of housing supply continues to underpin the price increases. Experts estimate that only about 200,000 new homes will be constructed this year, a figure that falls far short of the 320,000 annual units recommended by the German housing ministry to meet current demand by 2030. In urban centers, the situation is particularly acute. Average rents are expected to rise between 3.0% and 4.5% over the next year, slightly exceeding the growth rate of property prices. Vacancy rates in some major metropolitan areas have fallen below 1%, while demand remains robust. Benedikt Horwedel at LBBW pointed out that in larger cities, only about 50% of the necessary apartment completions are being met. > A noticeable easing of the situation is not conceivable for several years. The combination of limited supply, high demand, and economic uncertainty suggests that the German housing market will remain a challenging environment for both buyers and renters for the foreseeable future.