German house prices have fallen almost 10pc in a year, as rising interest rates and a prolonged economic stagnation hit the property market.
The Federal Statistical Office said average prices in the three months to June were 9.9pc below where they were during the same period of 2022 when prices were peaking after a post-pandemic surge in activity.
The slump was the biggest annual drop in property prices since records began in 2000. It represents a rapid reversal for prices, which surged after lockdowns.
At the peak of the boom in 2021, prices were up by almost 13pc on the year, according to the Federal Statistical Office. The slump has been triggered by a steep increase in interest rates.
Last week, the European Central Bank raised its headline deposit rate to 4pc, the highest rate in the eurozone’s history.
Borrowing costs have climbed rapidly as the ECB seeks to crush inflation, which currently stands at 5.2pc. The deposit rate was -0.5pc as recently as September 2019.
As well as higher borrowing costs, the property market is losing momentum in part because of the German economy’s struggles.
Business conditions in the retail industry are the worst they have been since late last year when the eurozone’s largest economy was entering a winter recession, according to a survey from the IFO Institute, an influential think tank.
Almost three-quarters of businesses in food and drink are still suffering supply chain problems, while most car dealerships are also struggling with bottlenecks.
Patrick Höppner at IFO said: “Expectations for the coming months also remain cautious. The further cooling of the economy is having an impact on retailers, who have also recently had to cope with weakening consumer demand.”
Business activity across Germany fell for the third consecutive month in September, according to the purchasing manager’s index (PMI), a survey of businesses by S&P Global.
Output in the manufacturing sector fell more steeply than at any point since the first wave of Covid-19 in 2020.
The services industry stabilised, with a PMI score of 49.8. Any result of below 50 indicates a contraction, so this suggests only a very small fall in services activity.
Meanwhile, in France both the manufacturing and services sectors contracted at a faster pace to take the overall PMI down to 43.5, its lowest in almost three years.
Angel Talavera, at Oxford Economics, said: “The eurozone economy remains very weak and we could see a contraction in the third quarter.
“Manufacturing is still in the doldrums and services are suffering, so prospects for a swift recovery look very slim at the moment.”