RPT-Fitch: Shift in German housing demand may support affordability
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Feb 21 (Reuters) - (The following statement was released by the rating agency)
The relative contribution of Germany's largest cities to residential property price growth has fallen in the last two years compared with the country's middle-sized and smaller urban areas, Fitch Ratings says. Slowing growth in metropolitan areas that have seen the sharpest price increases in recent years may help keep overall affordability levels stable and supports our view that the German property market is not overheating.
Mean growth in residential property prices for apartments in 125 German cities last year was around 6.3%, slightly lower than 2011's peak figure of 6.9%, according to data from research and consulting firm BulwienGesa. This reflects a deceleration in Germany's 14 largest metropolitan areas (populations above 500,000), even while there was a moderate increase in middle-sized (100,000-500,000) and smaller (below 100,000) urban areas.
Our analysis shows that last year's relatively even growth across the country was in sharp contrast to 2011, when the largest metropolitan areas such as Berlin, Hamburg and Munich posted an average price rise of nearly 10%. In 2013, the figure had dropped to 6.7%. By contrast, average annual growth rates in mid-sized and smaller towns and cities rose in the same period, to 5.9% from less than 5% (mid-size) and to 6.3%, from below 4% (smaller).
Our analysis of the BulwienGesa data is in line with the February Bundesbank report, which also showed residential property price growth in German metropolitan regions had slowed. The Bundesbank argued that a shift in demand to more regional areas explained most of the slowdown in metropolitan growth. It has previously noted the tendency of price rises in towns and cities to spill-over into neighbouring regions.
As we noted in our "Global Housing and Mortgage Market Outlook" in January, price rises have clearly outpaced income growth in some German metropolitan areas, and a rally at the same rate for another two years would increase the risk of price declines. Growth in smaller cities is catching up, but has been moderate and follows a long period of price stagnation to 2009. In contrast to some global metropolitan areas such as London, price-to-income ratios in most German cities remain moderate. Affordability in Germany as a whole is strong and we think will be stable in 2014 as house prices and incomes increase in tandem and mortgage rates remain low.
A shift in demand away from the biggest metropolitan centres that have seen the largest price increases may suggest that buyers are willing and able to look elsewhere. The interconnectedness and relative proximity of German cities should make this possible. If so, this may ease nascent affordability pressures in those cities that have seen strong growth.
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