There is a negative correlation between real estate prices and long-term interest rates. This means that when interest rates rise, property prices generally fall, and vice versa.
There are a few reasons for this correlation. First, higher interest rates make it more expensive to borrow money to buy a home. This could reduce demand for housing and lead to lower prices. Second, higher interest rates can make other investments, such as bonds, more attractive. This may lead some investors to sell their investment properties, further reducing demand.
However, the relationship between real estate prices and long-term interest rates is not always linear. For example, if interest rates are very low, a small interest rate increase may not have a significant effect on prices. In addition, other factors, such as the general health of the economy and the supply of housing, can also play a role in determining real estate prices.
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In the 2000s, when interest rates in Germany were low, real estate prices rose sharply. In the 2010s, when interest rates in Germany started to rise, real estate prices started to fall. In 2023, real estate prices in Germany fell by 9.9 percent in the second quarter, which is most likely due to rising interest rates.
It is likely that the negative correlation between real estate prices and long-term interest rates will persist in the future. This is because higher interest rates are a structural factor that will continue to influence the real estate market in Germany.
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