(The following statement was released by the rating agency)
Apr 23 - The current rise in German residential real estate prices after two decades in the
doldrums could potentially continue for the next two to three years, says Standard & Poor's
today in the report: "Why Germany's Rising House Prices Are Bucking The
"This is likely to be fueled above all by an excess of demand over supply
especially in the Western part of the country, low interest rates, rising
employment, and lower household debt than in most other European countries,"
said Jean-Michel Six, Standard & Poor's chief economist for Europe.
A 72.6% decline in housing construction starts between the 1995 peak and 2010
has created pent-up demand, the report says. Added to this, the number of
household units since German unification has increased by 5 million, chiefly
because more people are living alone or in smaller households.
Low interest rates also make German property appear a safe investment in a
country where fewer the half the population own their own homes.
Yet, the report says the risk of rising house prices becoming an asset bubble
is remote because the market has become increasingly affordable. The home
price-to-income ratio is still at an all-time low. Prices have been declining
steadily for 20 years while incomes have risen, if only modestly. German
household debt is also low by European standards, at 59.5% of GDP in the third
quarter of 2011 compared with the eurozone average of 65.3% and household debt
in Spain of 81.7%.
"The current rise in home prices could fuel consumer price inflation, which is
on the rise in Germany," said Mr. Six. "However, we believe that the modest
recovery in house prices is based on a healthy foundation--of demand exceeding
supply rather than on speculation, and on low interest rates."
The upturn in Germany's housing market potentially has positive economic
implications both domestically and for other eurozone countries, the report
says. A growing German construction sector would lead to a stronger domestic
economy that, in turn, clearly benefits Italy, France, and other countries,
for which Germany is a major export destination.
Yet, the report says the implications should not be overstated. "This is only
the very beginning of a modest recovery in home prices," said Mr. Six.