According to Deutsche Bank AG, Germany’s housing market has grown over the past seven years, with apartments in major cities rising in price by more than 60%. In Munich, prices have doubled. As a result, houses in 127 Germany's cities were overvalued by as much as 30% from a year before.
The report also showed that the low level of household debt indicates the low risk of correction.
A risk of housing bubble made the German government take preemptive action in the run-up to the national election next month. Euro area’s record low interest rates were denounced by Germany as they boosted housing prices across the country. In June, the government gave the central bank more room for maneuver in case of volatile property prices.
According to Michael Voigtlaender, who oversees coverage of financial and real estate markets, the price increase alone is not enough to create a bubble as the country has a robust mortgage market with steady equity ratios and moderate levels of home construction.
In addition, German homebuyers do not sell their homes to avoid paying taxes. That makes the market more resilient to such a property slump, which took place in Spain and Ireland after the financial crisis.
