House Prices and Bank Loans

von Christopher Naneder

Jun. Prof. Dr. Özlem Dursun De-Neef

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In recent years, the need for accumulating wealth for the retirement age became more and more evident. In times of the low interest rates and a pension system that is likely to collapse in 30 years because of demographic reasons, people are looking for ways to invest money in a reasonable way. One way of investment is to put the income in tangible assets like housing, gold etc. and real property is by far the biggest asset most households are likely to own. With all these circumstances in place owners depend on a stable or even growing value. Therefore, it is especially interesting to investigate how prices for houses develop in Germany in order to estimate how reliable this capital good still is and what other factors or variables influence house prices. The cost for housing are based on a various number of different factors. They largely depend on an operational banking system, interest rates, domestic and foreign markets. This complexity makes a closer investigation of the impact on house prices and how they are affected especially revealing.

Up to this day, nearly 50% of the households in Germany own a house or land to build a house on (figure 1). As a result, owning a house and home seems to be still the dream of Germans as it provides safety, security for retirement arrangement and a place of belonging. In other words for many households in Germany this is the only reliable asset they have on top of the sentimental value that a homestead also represents. Failing to pay back a mortgage or even being unable to afford buying own property is a serious disaster for many households. Evidence of this claim is that 30% of real estate owned by households in 2013 were single-family homes (figure 1). For these families, a house is a symbol for identity and quality of life, a place where to raise the children, as well as a huge investment. According to an article from “Statistisches Bundesamt”, a single-family-home sold around 200.000€ in 2010 (Ritzheim, p. 495).