Sunday, 8 July 2018

The International Monetary Fund: View of the German Housing Market

Germany : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Germany

In summary the IMF concluded that Germany needs to keep an eye on its property market.  House prices are most overvalued in Munich, Hamburg, Hannover, and Frankfurt, and are estimated to be more than 20 percent above their fundament level on average in major German cities.
A housing valuation model using Germany’s ten largest cities and twelve European peers shows that since 2010, house prices in Munich, Hamburg, Frankfurt and Hannover have increased by 25 to 50 percent above the levels suggested by economic fundamentals. The average overvaluation gap in the 7 biggest cities was 21 percent in 2017.
Annex IX. Is There a Housing Price Bubble in Germany’s Main Cities? 
IMF Country Report Germany, Annex IX 
As most studies are based on country wide price levels a view at city-level is important as they expose a risk level that does not shown at the housing market aggregate level.
     Kajuth, Florian, Thomas A. Knetsch and Nicolas Pinkwart (2016).
     Assessing House Prices in Germany:
     Evidence from an Estimated Stock-flow Model
     using Regional Data.
     Journal of European Real Estate Research Vol. 9(3), 286–307.


IMF Country Report Germany, Annex IX 
The IMF concludes that there is no cause for an alarm yet because there is no lending boom to accompany the price boom.

The economy surprised on the upside in 2017.

The findings of the IMF Report on the general state of the German economy is headed:  IMPRESSIVE RECENT ECONOMIC PERFORMANCE. Real GDP growth picked up sharply, reaching 2.5 percent, as exports rebounded and triggered a much-awaited pickup in investment. Strong private consumption, supported by a robust labor market, was offset by a slowdown in public consumption as refugee-related expenditures stabilized. Although both exports and imports grew strongly, the contribution of net exports turned positive again. The labor market continued to tighten: even though employment grew more slowly than in previous years, reflecting diminished migrant inflows, job creation was strong enough to bring the unemployment rate to a new post-reunification low of 3.6 percent.1 In the first quarter of 2018, growth slowed to 0.3 percent (qoq), reflecting a normal correction following unusually strong growth in late 2017 and temporary factors (strikes, a particularly nasty flu outbreak, and early Easter holidays), but the labor market continued to perform strongly.

Commentary:

The Germany : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Germany by the IMF shows Germany as a stable investment environment in the Housing Market.


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