Conditions that might point to an end of the cycle are not in place
In conclusion: The first three conditions that might point to an end of the cycle are
not in place in any of the metropolitan areas we have analysed. In many cities,
they might materialise by the end of the decade at the earliest. The fourth
condition might be fulfilled to some extent, as mortgage rates look set to rise
towards 2% by end-2018 (see our baseline scenario outlined above). However,
the interest-rate increase is unlikely to do more than just dampen the general
price uptrend in most cities.
First, any negative effects on demand may be offset in part by strong economic
activity or even completely ignored if the local market is particularly tight.
Second, German interest rates should remain low in a historical comparison in
2018, despite potential rate increases. Back in 2016, the Council of Economic
Experts already thought that, under the Taylor Rule, the money market interest
rate should be 250 basis points higher than it actually was. And today, this
theoretical interest rate level is even higher due to the very favourable economic
environment.
A slight increase in interest rates would narrow this gap only
marginally. Third, purchases might be brought forward so that demand rises.
During a rate-hike cycle, it is sensible to make planned investments sooner
rather than later. Overall, our conclusion is similar to that drawn for 2017. We
continue to expect strong apartment and house price growth and rent increases
in the metropolitan areas in 2018.
EU Forecast
euf:ba.18.j:172/nws-01