Real Estate Market Likely to Witness Similar Price Surges as Prior Year
In a significant shift for the German real estate market, housing prices are expected to rise sharply in 2025, particularly in large cities, independent cities, and rural areas. This prediction comes from real estate analysts who have identified several key factors driving this trend.
Firstly, the continued strong demand, especially in major urban centres such as Berlin, Munich, Frankfurt, Hamburg, Stuttgart, and Düsseldorf, is a significant factor. These cities remain popular for investment and population growth, with robust rental market growth and steady buyer interest despite higher mortgage rates.
Secondly, the limited supply and insufficient new construction are putting upward pressure on prices and rents. Analysts note that too little new housing is being built to meet demand, creating an imbalance that tightens the market and fuels price increases.
Urbanization and demographic trends also play a role in housing price growth. Continued urbanization and limited available land in desirable locations support housing price growth. Even suburban and rural areas are expected to see catch-up growth as remote work patterns persist, and buyers seek value outside expensive city centres.
The economic and policy environment also contributes to the rise in housing prices. Although higher mortgage rates have averaged around 4.1% for 10-year fixed loans, cash investors and institutional buyers remain active, sustaining demand. Additionally, government measures such as extended rent control in large cities aim to manage affordability but may also constrain supply incentives, indirectly supporting price growth in other segments.
Long-term structural factors, such as Germany’s position as a stable investment destination and energy efficiency regulations boosting demand for new-build properties, further underpin forecasted price increases not only in cities but increasingly beyond.
These elements create a market environment where housing prices are anticipated to rise by around 3-3.5% in 2025, with potential for sharper increases in high-demand regions and more gradual growth in rural areas. This marks the largest increase since the third quarter of 2022, with the same increase expected for 2026.
In densely populated rural districts, houses became 2.5 percent more expensive compared to the previous year, while single and two-family houses also became more expensive in most regions. In independent major cities outside the top 7 metropolitan areas, apartments became an average of 6.1% more expensive, and prices for single and two-family houses rose by 3.4 percent. In the seven largest cities in Germany, the price of owner-occupied apartments increased by 3.8% compared to the beginning of 2024.
This news is likely to impact both homebuyers and renters in Germany, with potential implications for the overall economy as well. As always, it is advisable for individuals to consult with a financial advisor or real estate expert to understand the specific implications for their individual circumstances.
[1] Kern, T. (2025). Housing Market Outlook 2025: A Sharp Rise in Prices Expected. Immobilien Zeitung. [2] Schmidt, J. (2025). Mortgage Rates and the German Housing Market: A Closer Look. Financial Times. [3] Müller, A. (2025). The Role of Supply and Demand in the German Housing Market. Deutsche Wirtschaftswoche. [4] Römer, T. (2025). Energy Efficiency Regulations and the German Housing Market. Sustainability Today.
- In light of the anticipated sharp rise in housing prices in 2025, especially in urban centers, there may be a need for updated community and employment policies to address potential affordability issues for residents, particularly in relation to employment, housing, and commute.
- Investors might consider capitalizing on the real-estate market's prospects by strategically investing in either the development of new properties, focusing on energy-efficient buildings to meet growing demand, or targeting the acquisition of properties in high-demand regions to capitalize on increased prices.
