European Housing Review 2007 – Executive Summary (pdf)
Summary of trends in the major European countries. Worth reading.
Here is what they say about Germany:
The housing market was broadly flat in 2006, although the
long slow decline of recent years seems to be over. It has been
helped by the fact that the economy is finally beginning to pick
up after several years in the doldrums and consumer
confidence is rising with it. Most mortgage borrowing is based
on fixed-interest rates, so that interest rates are less affected by
what the ECB does but rather influenced by changes in capital
market rates. Mortgage interest rates rose throughout 2006 but
only moderately and were still below their mid-2005 levels,
so unlike many European countries the housing market was
not particularly adversely affected by interest rate movements
In 2005, house prices had been falling, especially in real terms,
continuing a three year long process of moderate decline.
So, a price turnaround might finally be about to occur.
However, the prospect is for only limited change over the next
few years. The idea suggested by some commentators that the
German housing market is a sleeping giant which, when woken,
will roar in action with a burst of high price inflation remains an
Housebuilding rates have been subject to some marked swings
in recent years induced by subsidy and taxation changes but are
not expected to grow much over the next few years because of
the relatively quiescent state of the housing market.
In general, German regional housing markets have had mixed
fortunes over the past few years. Prices and rents in several
major cities in the West have increased moderately in response
to rising demand. In other places, however, previous excess
supply has left the market depressed in the face of poor general
local economic conditions. In particular, the East is still suffering
from substantial oversupply, which is contributing to weak prices